20140530-法国巴黎银行-EM_Strategy_Plus_15页_1mb

EM Strategy Plus Summary - 30 May 2014

Core Content Overview

This document provides a weekly summary of emerging market (EM) investment strategy, including key views on currencies, fixed income, credit, and options. It outlines asset allocation recommendations and highlights market risks and opportunities based on macroeconomic trends and upcoming events.

Key Views and Asset Allocation

FX

• Brazil: Neutral. The back end of the curve (>10 years) is expensive. Caution is recommended.
• Hungary: Bearish. Recommend long EURHUF call spreads and USDHUF spot.
• Indonesia: Bullish. Market is likely to focus on macro reforms. Recommend long 5y CDS.
• Malaysia: On a 1-3m view, USDMYR may trade lower to 3.15. On a 12m view, it may trade higher to 3.40.
• Mexico: Neutral. The curve is pricing in sharper tightening than expected. Recommend receiving 18m IBR Swap.
• Poland: Bullish. Recommend long PLNHUF and 5y bonds.
• Russia: Higher USDRUB in the medium term. Recommend 1s5s x-ccy steepener and 5y Russian CDS.
• South Africa: Bearish. ZAR is vulnerable due to structural issues and potential terms of trade shocks. Recommend buying 2m USDZAR call spread.
• Thailand: Neutral. Current account surplus limits weakness.
• Turkey: Negative at current levels. Recommend 1s5s x-ccy steepener and USDTRY RKO.

Local Debt

• Brazil: The back end of the curve is over-extended. Steepening on DI Jan'16xJan'17 is recommended.
• Hungary: Take profit on long HGB 19/A.
• Indonesia: Bullish on IDR bonds. Rotate from hard currency to local currency.
• Poland: Recommend long Jun18 bonds.
• Russia: Recommend 1s5s x-ccy steepener.
• South Africa: Recommend buying 5y South African CDS.
• Turkey: Recommend long 5y.

Local Rates

• Brazil: Steepening on DI Jan'16xJan'17.
• Poland: Recommend long PLNHUF.
• South Africa: Recommend receiving FRA 2x5.
• Turkey: Recommend 1s5s x-ccy steepener.

Trade Review

• Take profit on long HGB 19/A (locked in 80bp).
• Stay long the belly of the POLGB curve.
• Recommend buying 2m USDZAR call spread (strikes 10.65 and 11.0, 1x1 ratio, cost 102bp, pay-out ratio 4:1).
• Buy 5y Indonesian CDS (entry level 146bp, target 180bp, stop 130bp).
• Take profit on strategy to receive the belly on the DI fly (Jan'15/16/17).
• Maintain tactical position on the belly (steepening on DI Jan'16xJan'17).

New Recommendations

EM Strategy Highlights

• EM fixed income has outperformed developed market equities, returning 4-5% this year.
• The "sell in May and go away" strategy did not work in EM fixed income.
• The WGBI index returned almost 1% in May.
• The main focus of the week will be on the ECB meeting and the US nonfarm payrolls release.
• EM positioning has moved from underweight to neutral, leaving little room for further gains.
• Recommend receiving selective rates and using low FX vol and hedging EM FX.

EM Strategy Summary

• Key Events: ECB meeting and US nonfarm payrolls.
• Asset Allocation: A mix of FX, local debt, and credit instruments.
• Risks: Terms of trade shocks, inflation, and tightening credit conditions.
• Opportunities: Defensive trades, CDS in Indonesia, and options strategies in South Africa and Turkey.

EM Strategy Outlook

• The ECB's decision could impact EM bonds and currencies in the short term.
• The ZAR is vulnerable due to high inflation and structural issues.
• The carry argument is weak given the high inflation in South Africa.
• The real interest rate in ZAR is negative, making it more vulnerable.
• The funding environment for commodity currencies is tightening.
• The iron ore import issue is a major concern for South Africa, Brazil, and Australia.
• Copper and coal show less concern than iron ore.
• The document concludes with a bearish view on the ZAR and recommends hedging FX.