20180119-法国巴黎银行-EM_STRATEGY_PLUS_38页_4mb

EM Strategy Summary - 19 January 2018

Core Content

This document outlines the Emerging Markets (EM) FX and fixed income strategy for the week of 19 January 2018, produced by BNP Paribas and Turk Ekonomi Bank A.S. It highlights the factors influencing EM currencies, including global economic growth, risk sentiment, FDI and portfolio flows, and oil prices. The strategy includes new recommendations, trade reviews, and market outlooks for key regions such as Asia, CEEMEA, and Latam.

Main Themes and Key Insights

• EM FX Performance:

  • EM FX has shown strong performance, with record inflows into local and hard currency bond funds and EM equity funds.
  • The main drivers are stronger global economic growth, positive risk sentiment, and rising FDI/portfolio flows.
  • Oil prices have contributed, but not been the primary factor.
  • EM currencies are more correlated with global sentiment than with oil prices.

• Korean Rates:

  • The Bank of Korea (BoK) kept rates unchanged, but the market is pricing in close to two rate hikes over the next 12 months.
  • The strategy recommends receiving 1y1y Korean NDIRS at 2.20%, targeting 2.05% with a stop at 2.30%.

• Asia FX:

  • CLEER™ model predicts greater contrast between oil exporters (IDR, MYR) and importers (INR, PHP).
  • The KRW is seen as a cyclically sensitive currency with potential upside.
  • The CNY is considered overvalued, but the Chinese currency regime has changed, making past relationships less relevant.

• CEEMEA FX:

  • The HUF is recommended to be shorted against the EUR, with a 5y HUF IRS receiver position.
  • The NBH is expected to keep HUF from appreciating and flatten the curve.
  • The strategy notes the impact of domestic factors such as the ANC conference and ratings downgrades on currency movements.

• Latam FX:

  • Brazil's USDCLP is recommended to be longed due to being 4.5% below the model's fitted value.
  • The team took profits on the DI Jan-23 receiver position and opened a payer position in the Jan19sJan23s FRA.
  • The USDBRL hedging structure was reshaped by selling the shorter-term call-spread.
  • The team also took partial profits on the short USDCOP 3-month NDF.

• EM Portfolio Flows:

  • EM portfolio flows are expected to revive in Q1 2018, supporting Latam risk assets.
  • The global risk premium index remains at a very low level, indicating caution in positioning.

New Recommendations

Trade Review

• Interest Rates:

  • Receive 5y HUF IRS (new): 5k USD, entry 1.02%, target 0.80%, stop 1.15%, P/L +0bp.
  • Receive 5Y CNY NDIRS: 10k USD, entry 4.12%, target 3.85%, stop 4.25%, P/L +6bp.
  • Receive 1y1y KRW NDIRS (new): 10k USD, entry 2.20%, target 2.05%, stop 2.30%, P/L -2bp.
  • Pay Brazil Cubom Cambial Jan19sJan23s FRA (new): 7.5k USD, entry 3.26%, target 3.75%, stop 2.95%, P/L +12 bp.
  • Flattening Colombia IBR 9M-18M: 20k USD, entry 9, target 35, stop -15, P/L +6 bp.
  • Receive Brazil DI Jan20sJan21s FRA: 50k USD, entry 10.60%, target 9.75%, stop -8.98%, P/L -449.
  • Flattening Chile CLPxCAM 1Y-2Y: 8k USD, entry 1.70%, target 1.05%, stop -0.65%, P/L -325.
  • Long USDBRL CS 3.55/3.85: 50mn USD, entry 1.70%, target 1.05%, stop -0.65%, P/L -325.
  • Short USDBRL CS 3.50/3.80 (take profits): 50mn USD, entry 0.90%, target 0.32%, stop 0.58%, P/L +290.
  • Long USDBRL OT 3.12 / Mat: 19-Mar-18: 1.5mn USD, entry 29.50%, target 50.82%, stop -13.18%, P/L +320.
  • Long USDMXN OT 20.0 / Mat: 10-Apr-18: 1.5mn USD, entry 43.25%, target 30.07%, stop -13.18%, P/L -198.
  • Long Jun19 UDIBonus (increase): 25mn USD, entry 3.33%, target 3.55%, stop 3.06%, P/L -22 bp.
  • Buy Argentina 5Y CDS vs Sell 5Y Brazil/Mexico/Colombia CDS: 30mn USD, entry 124, target 175, stop 95, P/L -10 bp.

• P/L Summary:

  • Total: +547
  • Rates: -1174
  • FX: +1894
  • Options: +484
  • Credit: -657

What's Up Next Week?

Asia

• Malaysia: BNM will announce its policy decision on 25 January. Inflation is in the upper band, and a rate hike is expected.
• Singapore: CPI data will be released on 24 January, influencing market expectations for April policy decisions.
• Taiwan: December industrial production data will be released on 24 January.
• Philippines & South Korea: Q4 GDP data will be released on 23 and 24 January, respectively.

CEEMEA

• South Africa: CPI data on 24 January, with core inflation expected to fall to 4.3% y/y.
• Turkey: Treasury bond auctions and implications of the military operation in Syria will be closely watched.

Latam

• Brazil: Appeals court decision on Lula's corruption conviction on 24 January.
• Mexico: Bi-weekly inflation data on 24 January, expected to be on the high side.
• Argentina: 7-day repo rate decision on 24 January, with further easing likely.

Risk Premium Follow-up

• The global risk premium index remains at a very low level, suggesting caution in positioning despite a core bullish view.

Oil View

• Oil prices remain high, supported by supply disruptions and geopolitical tensions.
• Net oil positioning by money managers is at record longs, but the correlation with EM currencies is not consistent.
• Shale oil production may respond to higher prices, potentially leading to a correction later in the year.

Conclusion

The strategy emphasizes the importance of global growth, risk sentiment, and FDI flows in driving EM FX performance. While oil prices have had an impact, the main drivers are global macroeconomic conditions and regional political events. The team continues to recommend both long and short positions across various EM currencies and fixed income instruments, with a focus on hedging and tactical opportunities.