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FX & IR EM STRATEGY Summary

Core Content

This document provides an analysis of foreign investment flows and foreign exchange (FX) reserve trends in Emerging Markets (EM), focusing on Asia, CEEMEA, and Latin America (LATAM) regions. It highlights the dynamics of bond and equity flows, foreign ownership levels, and the factors influencing these movements.

Main Points

Equity Flows

• In the week to 29 January 2014, EM equity flows turned negative, led by sharp outflows from Asia, especially in Taiwan and Korea, totaling -USD 1.96bn.
• India and Thailand saw continued bond outflows, with foreigners net selling Indian debt and outflows from Thai bonds.
• In Malaysia, USD 435mn of MGS were purchased, while foreigners sold BNM notes and T-bills.
• Philippines and Indonesia also experienced mixed equity and debt flows, with foreign ownership of local debt decreasing slightly in some cases.
• Korea saw a significant drop in foreign percentage ownership of local debt on Jan-9th, from 41.52% to 40.70%, attributed to risk reduction ahead of NFP and CPI data.
• Foreign ownership in Korea remained at 44.6% in December, and the composition of foreign portfolio was dominated by equity and long-term debt.

Bond Flows

• Asia: Net bond outflows accelerated, with foreigners net sellers in Indian debt and continued outflows from Thai bonds.
• CEEMEA: South Africa, Hungary, and Turkey experienced significant non-resident outflows from local bond markets. In South Africa, the week to January 31st marked the sixth consecutive week of net outflows and the largest since June 2012.
• Turkey: Foreign holdings of TURKGBs decreased by USD 0.7bn in the week of January 24th, primarily due to offshore branches of Turkish banks.
• LATAM: In Mexico, the foreign portfolio composition remained stable at 32% short-term debt and 68% long-term debt. Foreign ownership of local debt stood at 41% of total debt outstanding.
• Brazil: Foreign portfolio holdings stood at 16.1% of total debt in December, slightly down from 16.5% in November. Flows were balanced, with a BRL 0.6bn inflow, much smaller than the net inflows seen in 3Q 2013.
• Colombia: Foreign bond holdings increased, but monthly flows were relatively small.

Key Information

FX Reserve Accumulation

• Asia: FX reserves showed a mixed trend, with some countries experiencing positive monthly changes and others negative.
• CEEMEA: FX reserves in South Africa, Hungary, and Turkey showed monthly changes, with South Africa seeing a notable decline in foreign bond holdings.
• LATAM: Mexico and Colombia saw moderate FX reserve accumulation, while Brazil had balanced flows.

Data Sources and Notes

• Data is sourced from BNP Paribas, local stock exchanges, central banks, and financial institutions.
• Caveats include the difference between net purchases and net investment, limited coverage of certain bond types, and potential discrepancies in daily data due to redemption and allocation timing.
• The data is non-independent and may be subject to conflicts of interest due to interactions with sales and trading.

Contacts and Disclaimer

• EM Strategy Contacts:

  • Bartosz Pawlowski: Global Head of EM Strategy, London
  • Piotr Chwiejczak, Dina Ahmad, Stanislav Petrov, Tatiana Tchembarova: FX & IR CEEMEA Strategists, London
  • Erkin Isik: FX & IR CEEMEA Strategist, Istanbul
  • Mirza Baig, Rohit K Garg, Jasmine Poh, Yii Hui Wong: FX & IR Asia Strategy, Singapore
  • Gabriel Gersztein, Thiago Alday, James Z Hao: FX & IR Latam Strategy, Sao Paulo

• Distribution: Contact Diana Seifert, Foreign Exchange, London for distribution inquiries.

• Important Disclosures:

  • This document is non-independent marketing communication.
  • It may be subject to conflicts of interest and not subject to independence requirements.
  • No liability is accepted for any losses arising from reliance on the report.
  • Estimates and opinions are as of the date of the report and not intended to be updated.
  • BNP Paribas may be involved in investment banking services or derivatives trading related to the mentioned entities.

• Legal and Regulatory Information:

  • This report is non-independent and non-objective research.
  • It is intended for professional clients only and not for retail clients.
  • It is authorised and regulated in the UK, France, Germany, and Japan.

Conclusion

The report outlines a mixed picture of EM investment flows, with notable outflows in equity and bond markets across several regions. Asia and CEEMEA showed significant net outflows, while LATAM had more balanced flows. The data is subject to limitations and caveats, and the report serves as marketing communication, not independent investment research.