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EM STRATEGY DAILY - 03 July 2018 Summary

Core Content Overview

This document provides a summary of Emerging Markets (EM) strategy insights and market updates from BNP Paribas across various regions, including Turkey, South Korea, South Africa, and Latin America. It also includes contact information for EM strategists and legal disclosures related to the document's use.

Key Market Updates

Turkey

• June CPI: Headline CPI increased by 2.6% m/m, pushing the annual rate to 15.4% y/y (Bloomberg expected 13.9%).
• Trading Strategy: On 30 June, a recommendation was made to enter 1v5 XCCY steepeners in 1-month forwards at -309bps, targeting -200bps. The trade expired at -250bps with a 59bp return.
• Portfolio Adjustment: 1m USD of USDTRY 1-month one-touch at 4.30 was added to the model portfolio.
• Economic Outlook: The TRY is expected to perform well due to lower external financing needs and high risk-adjusted carry.
• Current Account Deficit: Leading indicators suggest the annualized current account deficit to GDP ratio will peak at 6.6% in April and decline to 6.3% in June.

South Korea

• June Inflation: Inflation numbers for June printed at 1.5% y/y, below market expectations of 1.7%.
• Core Inflation: Core inflation decelerated to 1.2% from 1.3% in May.
• Policy Outlook: The Bank of Korea is unlikely to raise interest rates in July or the rest of the year due to weak export figures and government's expectation of keeping inflation within 1%.
• Currency Impact: The weak inflation data and global repricing of risky assets are pressing on the ZAR.

South Africa

• Balance of Payments: Disappointing Q1 balance of payments data has highlighted twin deficits and relative vulnerabilities.
• Currency Pressure: The ZAR is under pressure due to EM sell-off and increased fiscal pressure.
• Trading Recommendation: Updated USDZAR call spread with strikes 14.40/15.10 for 1.06% notional value, with a maximum payout of 3.5%.

Latin America

• Mexican Elections: Andrés Manuel López Obrador (AMLO) won the elections by a landslide margin.
• Policy Expectations: Incoming policies are expected to be moderate with NAFTA talks and the 2019 budget process being the main priorities.
• Political Impact: AMLO's coalition may have secured a 50% majority in both houses, based on preliminary results.
• Further Reading: Details on the implications of AMLO's victory can be found in the linked report: Mexico: AMLO wins; what's next?

Strategy Contacts

Legal and Regulatory Disclosures

• Non-Independent Research: This document is non-independent research and may be subject to conflicts of interest.
• Marketing Communication: It is considered a marketing communication under MiFID II and not investment research.
• Confidentiality: The document is for intended recipients only and must not be copied or distributed without prior consent.
• No Liability: BNPP disclaims any liability for inaccuracies or omissions in the information provided.
• Performance Data: Any performance data is based on back-testing and is not indicative of future results.
• ETF and Options Disclosures: The document includes important disclosures regarding ETFs and options, emphasizing risks and suitability.
• US Securities Laws: Certain securities discussed may be unregistered and only available to Qualified Institutional Buyers or non-US persons.
• Regulatory Compliance: The document is distributed in compliance with regulatory requirements in the UK, France, Germany, Belgium, Ireland, and Italy.

Additional Resources

• BNP Paribas Global Markets Website: www.globalmarkets.bnpparibas.com
• BNP Paribas Strategy Website: [BNP Paribas Strategy Website](BNP Paribas Strategy Website)
• Bloomberg Research Tags:
  • Fixed Income Research (BPFR)
  • G10 Interest Rate Research (BPBS)
  • Emerging Markets Research (BPFR)
  • Market Economics (BPEC)

Disclaimer

• This document is not investment advice and should not be relied upon as such.
• No Guarantee of Accuracy: The information is based on public sources and may not be independently verified.
• Risk Factors: Transactions may involve high risk, including market volatility, counterparty default, and illiquidity.