20160930-法国巴黎银行-EM_Strategy_Plus_27页_3mb

EM Strategy Plus Summary - 30 September 2016

Core Content Overview

This report provides an analysis of emerging market (EM) strategies, focusing on interest rate derivatives (IRD), foreign exchange (FX), and credit instruments. It outlines the current market dynamics and strategic recommendations for investors, highlighting key themes and upcoming economic data releases.

Main Themes of the Week

Asia: IDR Bonds - Reduce Length

• IDR bonds have performed well due to yield compression and carry.
• Bond yields at the long end are approaching a floor, with carry becoming the main driver of returns.
• Onshore liquidity and supply/demand dynamics are less supportive.
• The strategy is shifting to a neutral duration stance due to liquidity tightening and weak supply-demand outlook.
• A long 20y FR72 position was closed at 7.36% (entered at 7.85% on 28 May).

Asia: Close 5y CNY NDIRS

• The PBoC is unlikely to ease policy in Q4 due to improving economic data and policy concerns about the property bubble.
• The 5y CNY NDIRS receiver position was closed at 2.82% (entered at 2.76% on 26 August), with a target of 2.55% and a stop at 2.9%.

Asia FX Positioning: Divergent

• INR and IDR remain the most sought-after currencies in Asia.
• IDR positioning is approaching extreme levels.
• Investors are modestly long USDCNH.
• PHP is the most reviled currency, likely due to political developments.
• A clear break of 6.70 CNY/USD could encourage more long USD positions.

New Recommendations

Trade Review

Interest Rates

• Receive 2y SGD vs. pay 2y USD IRS: 10k USD, 0.43% entry, 0.00% target, 0.65% stop, -1 bp, -10
• Receive 5y CNY NDIRS (closed): 10k USD, 2.80% entry, 2.60% target, 2.90% stop, -2 bp, -20
• Receive 3y USDKRW NDS: 5k USD, 1.09% entry, 0.85% target, 1.25% stop, +6 bp, +60
• Buy 20y IDR bond (take profit): 10k USD, 7.85% entry, 7.37% target, 8.10% stop, +48 bp, +480
• Receive PLN 2y2y: 10k USD, 1.92% entry, 1.50% target, 2.10% stop, -9 bp, -90
• Buy POLGB Jul/21: 10k USD, 2.24% entry, 1.70% target, 2.50% stop, -11 bp, -110
• Pay the belly of 1s2s5s butterfly TRY xccy: 5k USD, -14 bp entry, -30 bp stop, +30 bp, +181
• Buy Brazil NTN-B May 21: 13k USD, 6.27% entry, 5.50% target, 7.00% stop, +21 bp, +135
• Receive Brazil DI Jan19 (take profit): 27k USD, 12.21% entry, 11.55% target, 13.00% stop, +66 bp, +1363

FX

• Sell 3m SGDCNH: SGD 10mn, 4.928 entry, 4.920 target, 5.00% stop, 0.16%, +16
• Buy 1x12 USDIDR NDF (closed): USD 10mn, 700 entry, 670 target, 550 stop, -0.23%, -23
• Sell 3m USDTHB fwd: USD 10mn, 34.62 entry, 34.68 target, 35.5 stop, -0.17%, -17
• Sell EURPN via 1m NDF: USD 8mn, 3.705 entry, 4.0% target, -3.0% stop, -2.27%, -182
• Buy BRL against a basket (CLP, EUR & AUD) via 1m NDF: USD 15mn, 192.74/4.018/2.6285201.28/3.694/2.496 entry, 15.00% target, 9.24% stop, 0 bp, 0

Options

• Buy 3m dual digitals in USDJPY (109) and USDKRW (1160): 1mn USD payout, 17.0% entry, 5.00% target, -12.0% P/L, -120
• Buy 1m USDTRY call with strike 3.05: USD 10mn, 0.70% entry, 0.17% target, -0.53% P/L, -53
• Buy 2m USDZAR put fly 14.10/13.70/13.30 (1:2:1): USD 20mn, 0.50% entry, 0.72% target, +0.22% P/L, +44
• Buy 2m USDZAR put spread 13.30/12.80 (1:1): USD 10mn, 1.10% entry, 0.62% target, -0.48% P/L, -48
• Buy 6m USDILS call butterfly 3.76/3.845/3.93 (1:2:1): USD 10mn, 0.50% entry, 0.40% target, -0.10% P/L, -10
• Buy USDMXN digital put 18.00: USD 1.5mn, 29.00% entry, 15.66% target, -13.34% P/L, -200

Credit

• Buy Kenya $ '24s, sell Senegal $ '24s: USD 1mn, 122 bp entry, 131 bp target, 60 bp stop, +11 bp, +6
• Buy Ghana $ '23s, sell Zambia $ '24s: USD 1mn, 34 bp entry, 17 bp target, 0 bp stop, +25 bp, +12
• Buy Qatar $ '26s, sell Abu Dhabi $ '26s: USD 10mn, 45 bp entry, 40 bp target, 60 bp stop, +6 bp, +54
• Buy Tunisia $ '25s (spread over swaps): USD 2mn, 446 bp entry, 454 bp target, 400 stop, 0 bp, 0
• Buy Slovenia $ 22s, sell Latvia $ 21s: USD 5mn, 81 bp entry, 79 bp target, 120 bp stop, +7 bp, +20

Key Highlights

EM Performance

• EM portfolio inflows remained strong, with USD 25bn in September (up from USD 20bn in August and July).
• Total Q3 inflows reached USD 64bn.
• G3 rates, especially negative US real rates, are supportive for EM.
• Recent weakness in EM could be due to European banking sector concerns, month-end adjustments, or other factors.

Upcoming Data

• Asia: China's mid-autumn festival holiday, RBI meeting, and PMI data.
• CEEMEA: Poland's central bank policy meeting, Hungary's PMI data, Czech Republic's PMI and retail sales, Russia's CPI inflation and current account data, South Africa's manufacturing PMI and net reserves data.
• Turkey: September inflation is expected to be 0.3% m/m, leading to a lower annual rate.
• Latam: Brazil's industrial production and IPCA survey, Mexico's inflation data and FX positioning.

FX Outlook

• INR and IDR remain the most sought-after currencies in Asia.
• IDR positioning is at extreme levels, while investors are modestly long USDCNH.
• A clear break of 6.70 CNY/USD may lead to increased USD long positions.
• PHP is the most reviled currency, likely due to political developments.

Conclusion

• The strategy is shifting to a neutral stance on IDR duration due to liquidity tightening and weak supply-demand outlook.
• Carry will be the main driver of returns in IDR bonds.
• The PBoC is unlikely to ease policy in Q4.
• The report emphasizes the importance of monitoring European banks and their impact on EM performance.