20181029-法国巴黎银行-Mexico__Reduce_positions_and_assess_the_new_scenario_8页_929kb

Summary of the Document: TRADE IDEA - EMERGING MARKETS | LATAM (29 October 2018)

Core Content

This document is a trade idea report from Banco BNP Paribas Brasil S.A. focused on the Mexican peso (MXN) and the Mexican Interbanketary Offered Interest Rate (TIIE) in the context of Latin America emerging markets. It outlines strategic positions and market outlook for specific financial instruments, while also including extensive legal and regulatory disclosures.

Main Concerns and Key Messages

• TIIE Premium: Both the TIIE 5y and 10y are trading at a significant premium (100bp above fair value) according to the factor model.

• Market Sentiment: The current market environment is described as bearish, with prices being influenced more by news headlines and speculation than by macroeconomic fundamentals.

• Similarity to Brazil 2015-16: The report expresses concern that the market dynamics in Mexico may mirror those of Brazil in 2015-16, where prices were volatile and driven by sentiment rather than data.

• Position Adjustments:

  • Positions in TIIE 5y5y receivers and TIIE 5y against IBR 5y have been closed due to the stop level being reached, resulting in negative P&L of 77bp and 113bp respectively.
  • The fly TIIE 2s5s7s (paying the belly) was closed with a positive P&L of 21bp (USD563,000).
  • The firm continues to hold positions in TIIE 1y1y receivers.

• MXN Exposure: The firm is long MXN against EUR with a P&L of +0.40%. The bullish bias is attributed to the carry trade.

Strategic Implications

• Valuation Concerns: The firm believes that Mexican assets are undervalued and could decline further due to the current market conditions.
• Market Uncertainty: The firm emphasizes the need for caution in the current uncertain environment, where macroeconomic data is less influential than market sentiment.
• Investment Risks: The document highlights that the strategies discussed involve high risk, including market volatility, counterparty risk, liquidity risk, and potential for unlimited losses.

Legal and Regulatory Disclosures

• The document is a marketing communication and not independent investment research.
• It is intended for Relevant Persons, including Professional Clients and Eligible Counterparties under MiFID II.
• Conflicts of Interest: BNPP and its affiliates may have financial interests in the instruments discussed, including acting as market makers, advisors, or underwriters.
• Confidentiality: The information is provided on a strictly confidential basis and may not be copied or distributed without prior written consent.
• Non-Registration of Securities: Certain instruments may not be registered under U.S. securities laws and are therefore restricted to Qualified Institutional Buyers or non-U.S. persons.
• Options and ETFs: The report includes important disclosures about the risks associated with options and ETFs, including tracking error, currency risk, and potential conflicts of interest.
• Jurisdictional Restrictions: The document contains information specific to various jurisdictions (UK, France, Germany, Belgium, Ireland, Italy, Netherlands, Portugal, Spain, Switzerland, Canada), with distribution limited to authorized and supervised entities.

Conclusion

The report suggests a cautious approach to emerging market instruments, particularly in Mexico, due to the current bearish sentiment and valuation premiums. Strategic adjustments have been made, and the firm continues to maintain certain positions while advising against further risk-taking. The document is a non-independent research communication and includes detailed legal disclaimers and restrictions on use and distribution.