20180611-法国巴黎银行-EM_portfolio_flow_model_shows_that_the_worst_is_over_9页_456kb

Emerging Markets Strategy Summary

Core Content

This document outlines the current outlook and strategies for Emerging Markets (EM) portfolio flows and specific currency and interest rate positions in Brazil, Mexico, and Argentina, based on analysis by BNP Paribas Brasil S.A. The report is produced by the Commodity Quant Strategy team and highlights the expected trajectory of EM portfolio flows, along with tactical positioning in key markets.

Main Points

• Portfolio Flows to EM:

  • Portfolio flows to EM were almost flat in April and saw USD 12.3bn in outflows in May.
  • The three-month cumulative flows have dropped to +USD 6.4bn.
  • The model suggests that EM portfolio flows should return to the positive camp, with a projection of up to USD 50.2bn in the next three months (equity and debt combined).
  • Only a substantial deterioration in risk appetite (global risk premium reaching the fifth percentile of the 10-year historical distribution) would result in flat flows.

• Model Structure:

  • The model uses lagged explanatory variables and has the form:
    $$
    \text{Portfolio flows } t = \alpha + \rho^{} \text{BNP Paribas Global risk premium index } t + \gamma^{} \text{G3 balance sheet changes } t - 12 + \eta^{*} \Delta \text{USD Trade Weighted Index } t - 10 + \varepsilon
    $$
  • It allows for forward-looking scenarios by incorporating lagged data.

• Strategic Positions:

  • Brazil:

    • Holding a receiver position in the FRA Jan-21s20s with a total allocation of USD 60k DV01.
    • Re-entered a receiver trade in the FRA Jan-22s23s at 13.92% with USD 10k DV01.
    • BRL underperformed EM peers in May due to strong USD and idiosyncratic factors.
    • Short-term recovery is expected, but market dynamics do not support short-term positions.
    • Strategy shifted to medium-term FX options.

  • Mexico:

    • Allocation remains in rates, with a bias towards the short side.
    • Holding a 1y1y receiving position.
    • Three relative value trades:
      1. Receive 5y TIIE against Colombia 5y IBR.
      2. Receive 5y5y TIIE on a spread over 5y5y US swap.
      3. Curve play: fly TIIE 2s5s7s (paying the belly).

  • Argentina:

    • Went back to the short camp following the IMF loan announcement.
    • Capital flight has not slowed, and the ARS is expected to continue declining.

Key Information

• Risk Considerations:

  • Trade tensions are a potential negative factor not incorporated into the model.
  • The report does not guarantee accuracy or completeness of the information.
  • It is not investment research and is considered a marketing communication under MiFID II.

• Disclaimer:

  • The information is for informational purposes only and should not be relied upon as an offer to sell or issue.
  • No responsibility is accepted for any loss arising from reliance on the document.
  • Indicative prices are not actual transaction terms.
  • The document may contain back-tested performance data, which is not indicative of future results.
  • The document is not a prospectus and does not constitute an offer to buy or sell securities in the U.S., Canada, or other jurisdictions.

• Legal Notice:

  • The document is produced by a BNPP group company and is for the use of intended recipients only.
  • It may not be reproduced or transmitted without prior written consent.
  • BNPP may have conflicts of interest due to its role in investment banking and market-making activities.

Conclusion

The report concludes that EM portfolio flows are expected to turn positive again, although differentiation among markets will persist. The team remains tactical in their approach, with specific strategies in place for Brazil, Mexico, and Argentina. The analysis is subject to various risks and legal disclaimers, and the information provided is not intended as investment advice.