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EM Strategy Daily Summary - 06 March 2018

Core Content Overview

This document outlines the Emerging Markets (EM) strategy update for 06 March 2018, focusing on currency and equity market movements, trading positions, and economic outlooks for selected EM regions. It also includes details about the strategy team and legal disclaimers.

Key Market Insights

Asian Equity and FX Markets

• Asian equity and FX markets traded stronger this morning.
• The market moved away from fears of US protectionism and possible retaliation.
• Key indices: KOSPI, HANG SENG, and KOSPI showed particularly strong gains.
• Currency pairs were broadly stronger against the dollar, with credit spreads tightening by 0-3bp.

India

• A new short-term long position in INR was opened via a 1m USDINR put spread at 65.0 vs. 64.0.
• The rupee weakened due to negative domestic news and global volatility.
• Downside risks are considered well priced, and the central bank is expected to continue smoothing volatility.
• Market volumes spiked around 65.0, suggesting authorities were actively leaning against the market trend.

South Korea and Philippines

• South Korea's inflation rose to 1.4%, up from 1.0% in the prior month, driven by food prices and the Olympics effect.
• Philippines inflation reached 4.5% in February, above the market consensus of 4.2%.
• The BSP remains comfortable with a weaker peso, even though inflation is above their target range of 2-4%.

Strategy Adjustments

South Africa

• GDP growth data is expected to print at 1.8%, in line with expectations.
• The Ministry of Finance revised growth forecasts upward, leading to a reduction in the expected peak of net debt in GDP terms to below 60%, which is considered unsustainable by Moody's.
• The net international investment position (NIIP) is positive, suggesting local investors may reduce USD positions during USDZAR spikes.
• 2y2y ZAR rates have bounced from 7.05% to 7.40%, and we have initiated a recommendation to receive these rates at 7.56% (10k DV01) and added another 5k position at current levels, targeting 7.00%.
• 1-month and 3-month realised forward ZAR returns remain positive, with 3-month returns over 15%, providing a buffer against potential drawdowns.

Turkey

• We closed a 5k DV01 position in TRY 1y1y CCY rates payer at 13.20%, achieving a profit of 14bp (including carry).
• The original 5k DV01 allocation initiated at 13.28% is close to flat (including 7bp carry).
• 1y1y rates in Turkey are range-bound, but we remain content to collect positive carry on the remaining position.
• If rates fall below 13.10%, we would consider adding more positions.
• The rationale for the trade remains unchanged: we expect the CCY curve beyond 1y to steepen due to fast depreciation expectations driven by stubborn high inflation and lack of currency performance.

Latin America (Latam)

• Reduced our allocation in the Brazilian FRA DI Jan-21/Jan-20 receiver position, taking a +65bp profit.
• Entered the position at 10.60%, targeting 9.75% (currently at 9.96%).

Strategy Team Contacts

Legal Disclaimer

• This document is non-independent research and may be subject to conflicts of interest.
• It is a marketing communication and not investment research for the purpose of MiFID II.
• The information and opinions are based on public sources and may not be independently verified.
• BNPP may have financial interests in the securities or entities mentioned.
• This document does not constitute an offer to sell or issue any financial instrument.
• Transactions are subject to terms agreed upon in relevant documentation.
• BNPP does not provide investment, financial, legal, or tax advice.
• Past performance is not indicative of future performance.
• Simulated performance may not reflect real market factors such as liquidity constraints and transaction costs.
• The document may contain back-tested performance data for illustration only.
• All information, terms, and pricing are subject to change without notice.
• BNPP may act in a manner inconsistent with the views expressed in this document, either for its own account or for clients.

United States Disclosures

• Options discussed may be complex and not suitable for all investors.
• ETFs discussed have risks including tracking error, currency, and geopolitical risks.
• BNPP and its affiliates may have conflicts of interest related to ETFs.
• Some securities may not be registered under US Securities Laws and are considered "restricted securities".
• This document is a general solicitation of derivatives business and not an offer to sell securities in the US.

UK and France Disclosures

• The document is communicated by BNP Paribas London Branch.
• BNPP SA and BNPP Arbitrage are authorized and supervised in France.
• BNPP London Branch is lead supervised by the ECB and ACPR.
• BNPP London Branch is registered in England and Wales under number FC13447.