20160603-法国巴黎银行-EM_Strategy_Plus_28页_2mb

EM Strategy Summary - 3 June 2016

Core Content

This document outlines the EM Strategy Plus report for 3 June 2016, focusing on the impact of weak US non-farm payrolls on emerging market (EM) assets, regional performance in CEEMEA, Latam, and Asia, and specific investment recommendations across various asset classes.

Main Views and Key Information

US Weak Payrolls Support EM

• The weak May non-farm payroll numbers (38,000 gain vs. 160,000 expected) reduce the likelihood of a near-term Fed rate hike.
• This is positive for EM assets as it supports lower US real rates and a weaker USD.
• EM assets underperformed the oil rally in May, indicating potential upside.
• Short-term US real rates are expected to drop further into negative territory, which should benefit EM currencies and assets.

Oil Prices and EM Assets

• Oil prices remain supported at USD 49-50/bbl (Brent).
• EM FX and credit have underperformed the oil rally, suggesting additional upside potential for EM assets.
• The CBRT (Central Bank of Turkey) is addressing liquidity and swap rate issues, which are affecting the effectiveness of rate cuts.

Turkey: Fighting Unwanted Tightening

• The CBRT is working to ease liquidity conditions by adjusting the distribution of repo funding throughout the week.
• This should help reduce short-term swap rates and improve the carry on the TRY.
• The team maintains a 3m receiver and a leveraged call spread on USDTRY.

Gabon: Buy on Underperformance vs Oil Rally

• Gabon Eurobonds have underperformed the recent oil rally, making them a potential buy.
• Gabon has lower oil exposure than Nigeria, a manageable debt burden (one of the lowest in Africa), and low risk of Eurobond issuance this year.
• The team adds Gabon 2024 and 2025 bonds to the favoured African bond list, suggesting a switch from Nigeria into Gabon and Angola for an average z-spread pick-up of around 165bp.
• Gabon's strategic plan (Plan Stratégique Gabon Emergent) aims to diversify the economy, reducing reliance on oil.

Mexico: Peso Performance and FX Dynamics

• The MXN remains underperforming in the region due to foreign investor unwinding and lack of guidance from authorities.
• The IMF approved a renewal of Mexico's flexible credit line (FCL) for USD 88bn, which supports FX intervention but had a short-lived positive impact on risk assets.
• The team maintains a short CADMXN position and is cautious about the peso's long-term outlook.

Brazil and Other Latam Countries

• Political developments such as 'Operation Car Wash' are not changing Brazil's structural story, but may provide entry points for BRL rates and CDS.
• The central bank is expected to keep policy rates unchanged in the coming meeting.
• Colombia raised rates by 25bp, signaling the end of its hiking cycle and a shift towards potential rate cuts in 2017.

Investment Recommendations

New Recommendations

• Buy Angola ‘25s, Gabon ‘24s/‘25s, sell Nigeria ‘23s: USD 1.5mn, z-spread pick-up of ~165bp, target 100bp, stop 205bp.
• Pay DI Jan21: USD 7.5k, entry at 12.89%, target 13.39%, stop 12.39%.

Current Positions

• Receive 3m USDTRY forward implied yield: Target revised to 9.00%, entry at 10.12%.
• Leveraged call spread on USDTRY: Maintained due to expected decline in carry.
• Buy 3m USDTHB: USD 10mn, entry at 35.4, target 36.5, stop 34.7.
• Sell 6m MYRIDR: USD 10mn, entry at 3426, target 3200, stop 3550.
• Buy 12m USDHKD: USD 10mn, entry at 7.79, target 8.00, stop 7.74.
• Sell USDZAR: USD 10mn, entry at 15.72, target 14.70, stop 16.20.
• Short CADMXN: USD 10mn, entry at 13.90, target 12.50, stop 14.73.

Options Positions

• Buy 3m USDKRW DNT: Strikes 1130 and 1230, 3M NDF ref 1176.5.
• Buy 3m USDINR ATM call: Strike at 68.50, RKO at 71.50.
• Buy 6m USDMXN digital put 17.50: USD 0.75mn, entry at 27%, target 8.73%.
• Buy 1y USDMXN digital put 18.00: USD 1.5mn, entry at 29%, target 27.56%.
• Buy 6m USDBRL call spread 4.00/4.40 (1:2): USD 20mn, entry at 0.12%, target 0.00%.
• Buy 3m USDBRL PS 3.95/3.60 (1:2) / sell USDBRL Call 4.30: USD 10mn, entry at 0.53%, target 7.77%.

Credit Positions

• Buy Gabon 2024 and 2025 bonds: Added to the list of favoured African credits.
• Buy Angola ‘25s, Gabon ‘24s/‘25s, sell Nigeria ‘23s: USD 1.5mn, z-spread pick-up of ~165bp.
• Buy Hungary $21s, buy Hungary 5y CDS: USD 10mn, z-spread pick-up of 68bp.
• Buy Vietnam $20s, buy Vietnam 4y CDS: USD 10mn, z-spread pick-up of 63bp.
• Buy Turkey $21s, buy Turkey 5y CDS: USD 10mn, z-spread pick-up of 32bp.
• Sell SECO $22s, sell Saudi 5y CDS: USD 4.5mn, z-spread pick-up of 26bp.
• Buy Arg 2021 SoT: USD 12.5mn, entry at 492, target 442.
• Sell 5y Brazil CDS: USD 15mn, entry at 375, target 357.
• Buy 3-month Lebac: USD 20mn, entry at 5.4%, target 8.3%.

Key Events and Data Releases

Asia

• India: RBI is expected to keep rates on hold, with further easing likely in Q3 2016.
• South Korea: BoK meeting on 9 June, with a 60% chance of a rate cut in the next three months.
• China: Releases May trade balance, CPI, PPI, and new loans, M2, total social financing on 8 June.
• Malaysia and India: April industrial production data on 10 June.

CEEMEA

• South Africa: S&P is reviewing its rating (BBB-, outlook Negative).
• Poland: MPC meeting on 8 June, with expectations of rate hold.
• Turkey: CBRT's measures to ease liquidity and correct swap rate issues.
• Hungary and Gabon: Z-spread analysis and strategic plans to diversify the economy.

Latam

• Mexico: CPI and USD MXN policy rate decision on 9 June.
• Brazil: New government and fiscal flexibility measures, with a focus on political stability.
• Colombia: Central bank raised rates by 25bp, signaling the end of the hiking cycle.

Conclusion

The report highlights the supportive environment for EM assets due to weak US non-farm payrolls and stable oil prices. It emphasizes the importance of liquidity conditions in Turkey, the underperformance of Gabon Eurobonds relative to oil, and the potential for improved performance in Gabon and Angola. The team recommends specific trades and positions across rates, FX, options, and credit instruments, with a focus on yield and spread opportunities. The outlook for EM remains positive, with a cautious approach to FX and credit risks.