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EM STRATEGY DAILY - 04 January 2018 Summary

Core Content

This document is a daily emerging markets (EM) strategy update from BNP Paribas, covering market developments, risk sentiment, and policy outlooks across various regions. It highlights key events and market dynamics, particularly in the context of global macroeconomic conditions and central bank policies.

Main Points

Global Market Outlook

• FOMC Minutes: The minutes were uneventful, with no major surprises. The USD benefited from strong economic data, notably the ISM manufacturing report.
• Risk Sentiment: Positive sentiment towards risky assets continued this morning, with equities, commodities, and EM currencies showing strength.
• Commodity Prices: Brent oil prices reached new highs above $68/bbl. Speculators are increasing long positions, which could lead to higher inflationary pressures later in the year.

CEEMEA Region

• Turkey:

  • Headline inflation is expected to decline to around 10% in the near term due to base effects.
  • Inflation expectations remain on an upward trend, suggesting a negative outlook for the medium term.
  • The central bank is unlikely to raise rates further at the MPC meeting on 14 December.
  • The economy remains reliant on foreign investment, particularly short-term portfolio flows, which are sensitive to USD liquidity conditions.

• South Africa:

  • Political uncertainty has somewhat subsided following the ANC elective conference.
  • However, the lack of clear fiscal policy reforms may limit long-term foreign direct investment.
  • The strategy team remains cautious about USDZAR and is positioned for a correction via call spreads.

• Poland:

  • Inflation data for December surprised to the downside, dropping to 2.0% y/y from 2.5% in November.
  • Price pressures remain contained despite strong economic growth indicators.
  • This suggests that policy tightening may not be necessary in the first half of 2018.

• Egypt:

  • Net foreign reserves in December reached USD 37bn, the highest in over 20 years.
  • This indicates improved foreign exchange stability.

Latin America

• The Latam Strategy team has provided a guide on ARS-denominated instruments active in Argentina.
• Argentina faces a significant USD 30bn financing need for 2018 and is expected to rely on various instruments from the National Treasury and central bank.

Asia

• Malaysia: The rise in WTI oil prices has not significantly impacted the Malaysian ringgit due to ample palm oil stockpiles.
• China:
  • Deleveraging efforts continue with the PBoC tightening NCD sales quotas.
  • Banks are limited to issuing NCDs up to one-third of their end-September total liabilities minus interbank liabilities.
  • The strategy team believes that further deleveraging policies and lagged effects of previous measures will slow credit expansion and hurt the real economy.
  • A recommendation was made to receive CNY 5y NDIRS with a target yield of 3.85% in mid-December.

India

• The government plans to issue USD 12.6bn in bank recapitalisation bonds by 31 March.
• These bonds are expected to add INR 60bn/year to the budget deficit, contributing to a weaker bond market in 2018.

Key Information

• The document includes contact details for BNP Paribas EM strategy teams across various regions.
• It is important to note that the document is a marketing communication and not investment research. It is not independent research and may be subject to conflicts of interest.
• The document does not provide financial, legal, or tax advice and is not a prospectus or public offering document.
• All estimates and opinions are subject to change without notice and are based on the views of the strategy teams as of the date of the document.
• Indicative prices and terms are provided for informational purposes only and should not be relied upon for making investment decisions.
• The document may contain back-tested performance data, which is for illustrative purposes only and does not reflect actual market conditions or future results.

Contacts

Legal Disclaimer

• This document is a marketing communication and not investment research.
• It is subject to conflicts of interest and may not be independent.
• BNP Paribas may have financial interests in the issuers mentioned.
• The document does not constitute an offer to sell or issue any financial instruments.
• All information is based on public sources and may not be verified.
• No guarantees are made regarding accuracy, completeness, or fitness for a particular purpose.
• Simulated performance data is for illustrative purposes only and not indicative of actual results.
• The document is not intended to provide financial, legal, or tax advice.
• It is confidential and may not be reproduced or distributed without prior written consent.