20180309-法国巴黎银行-GLOBAL_WEEKLY_EM_STRATEGY_PLUS_30页_2mb

EM Strategy Summary - 9 March 2018

Core Content

This document outlines the Emerging Markets (EM) strategy for the week of 9 March 2018, authored by the EM Strategy Team at BNP Paribas, including contributions from various regional experts. It discusses the implications of US tariffs on EM countries, the performance of EM assets, and specific investment recommendations across different markets.

Main Themes

US Tariffs and EM Impact

• The US announced new tariffs on steel and aluminium, which are expected to have a limited direct impact on EM countries due to the small share of EM exports to the US in these categories.
• The tariffs are likely aimed at China, which has the largest trade imbalance with the US.
• A broadening of the tariffs could lead to significant concerns, while a large-scale escalation of trade protectionism is considered a tail risk.

Trade and EM Benefits

• EM countries have been major beneficiaries of global trade growth, which has outpaced developed market (DM) GDP growth.
• Trade agreements have contributed to reduced tariffs, particularly in EM, although they still remain higher than in DM.
• EM trade now accounts for over 60% of global trade, highlighting their importance in the global economy.

Key Investment Recommendations

Bonds

• China 5Y CGB: Extended yield target from 3.7% to 3.6%. The PBoC is expected to be less aggressive in rate hikes compared to the Fed, supporting bond prices.
• China 10Y Government Bond: Yield dropped 9bp to 3.82% in February, and the 10Y CDB financial bond fell from 5.04% to 4.81%.

FX

• Buy 1-month USDINR put spread (64 vs 65, 1X1): New recommendation with a notional of USD 10mn.
• Short USDCOP via 3m NDF: Notional USD 10mn, with a current P/L of 0.76%.
• Long USDCLP via 3m NDF: Notional USD 7mn, with a current P/L of 0.48%.
• Short USDPEN via 3m NDF: Notional USD 10mn, with a current P/L of 1.03%.
• Long BRL against a basket (CLP, EUR & AUD) via 1m NDF: Notional USD 5mn, with a P/L of -9.41%.

Interest Rates

• Receive ZAR 2y2y: Added 5k DV01 to the position, with a notional of 15k USD.
• Pay TRY 1y1y CCY: Took partial profits on 5k of a 10k DV01 position.
• Receive Brazil DI Jan20s/Jan21s FRA: Reduced allocation by half, with a notional of 25k USD and a target of 9.75%.

Options

• Buy 1y USDHKD call spread (7.70 vs. 7.80, 1X1): Notional USD 100mn, with a current P/L of 0.76%.
• Long USDBRL PS 3.25/3.15: Maturity 06-Mar-18, expired close to breakeven.
• Long USDBRL CS 3.55/3.85: Maturity 23-Aug-18, with a current P/L of -0.82%.

Credit

• Long Jun19 UDBonos: Notional USD 25mn, with a current P/L of -123 bp.
• Buy Argentina 5Y CDS vs Sell 5Y Brazil/Mexico/Colombia CDS: Notional USD 30mn, with a current P/L of +8 bp.

Summary of Positions

Market Outlook

• Asia: No major central bank meetings next week. China's National Party Congress meeting continues until 19 March, with key appointments expected.
• CEEMEA: Hungarian central bank (MNB) will hold IRS tenders on 15 March. The HUF-EUR 5y swap rate differential is expected to tighten further.
• Latam: Argentina's central bank (BCRA) is expected to keep the 7-day repo rate unchanged, as structural issues continue to pressure the currency.

Key Risks

• Trade Protectionism: Escalation of trade tensions could impact EM countries through exports, employment, and capital flows.
• US Federal Reserve Policy: The PBoC may feel pressure to follow US rate hikes, which could affect Chinese bond yields.
• Capital Flows: Exogenous capital outflows from Hong Kong could necessitate FX intervention or rate adjustments to stabilize the USDHKD spot rate.