20160429-法国巴黎银行-EM_Strategy_Plus_35页_4mb

EM Strategy Plus Summary - 29 April 2016

Core Content

This document provides an analysis of emerging market (EM) strategies, focusing on credit, FX, and interest rate markets. It highlights the current stance of G4 central banks, the impact of US real rates, and regional dynamics in EM performance.

Main Views

• G4 Central Bank Meetings: The meetings did not alter the view on EMs. The Fed remains dovish, and while the BoJ did not ease policy this week, it is expected to do so in June or July.
• US Rates and Inflation Breakevens: The Fed's stance and low inflation have been supportive for EMs. However, rising inflation breakevens suggest a potential shift in real rates, which could be negative for EM assets.
• EM Credit Rally: The EM credit rally has been strong, with a 6.6% year-to-date return. The rally is expected to slow as new issuances and oil-based support may not be enough to sustain it.
• Carry Trade Dynamics: EM credit is likely to transition from a long position to a carry trade as the rally continues.
• Regional Outlook:
  • Latam: Currencies have appreciated, with a stronger outlook for Brazil and Chile/Peru due to improved terms of trade.
  • CEEMEA: CEE countries appear undervalued with low volatility. Hungary's rate hike has impacted the region, but further easing is unlikely.
  • Asia: Currencies rallied due to BoJ's decision, with the KRW as a standout. The Chinese economy remains a key factor, with a managed slowdown expected.
• Risk Appetite and Real Rates: USD real rates are a key determinant of risk appetite. Negative real rates have supported EM assets, but the current rise in breakevens indicates a potential shift.
• Credit Strategy: The document recommends a long position in Angolan credit, which has underperformed the FX and local rate rally. It also suggests an overweight on EM credit overall.

Key Information

• US Real Rates: Close to zero, which is stimulative for EMs.
• Inflation Breakevens: Rising breakevens suggest the risk-taking cycle is in its late stage.
• FX Forecasts:
  • BRL: Forecasted to trade at 3.80 at end 2016.
  • CLP and PEN: Upward adjustment due to better terms of trade.
  • KRW: Strong performer due to similar export products to Japan.
• Credit Recommendations:
  • Angola '25s: Buy vs Gabon '24s/'25s and Nigeria '23s.
  • Turkey: Buy Turkey $21s and 5y CDS.
  • Slovenia: Buy Slovenia $23s, sell Romania $24s.
• Risk Factors:
  • Rising break even rates.
  • European political developments.
  • Potential Chinese economic shocks.
  • Oil supply and demand dynamics.

Trading Opportunities and Positions

• Asia: Profit taken on USDPHP long, stop loss extended on PLN 2y2y receiver.
• CEEMEA: Extended stop loss on Poland's 2y2y receiver, added overweight on Angola '25s.
• Latam: Adjusted long EUR Discount recommendation in Argentina.
• Options and FX Positions: Various options and FX trades are outlined, including covered calls, straddles, and NDFs.
• Credit Positions: Highlighted the addition of new credit trades, with a focus on Angola and Turkey.

Conclusion

The report suggests a cautious approach to EM investments, particularly as the risk-taking cycle may be nearing its end. It emphasizes the importance of US real rates, the Fed's stance, and the potential for a managed slowdown in China. Despite these risks, EM credit remains supported by low yields and a positive outlook for certain regions like Latam and CEE.