20180116-法国巴黎银行-BNP_Paribas_MarFA_Monitoring_the_exuberance_21页_2mb

BNP Paribas MarFA™ Summary

Core Content

BNP Paribas MarFA™ is a cross-asset correlation framework designed to identify key macro and market factors influencing asset prices and to detect mispricings that are likely to correct within 1-2 months (MarFA™ Macro) or 1-2 weeks (MarFA™ Trading). The framework evaluates 75 assets across rates, equities, credit, FX, and commodities.

Main Macro Factors

The following are the key macro factors identified by MarFA™ Macro:

• Economic activity: Captured by survey data such as PMIs. This is the most important factor, explaining around 53% of the total variance in the asset universe. It is particularly significant for equities and credit.
• Inflation expectations: Measured by 5y5y inflation and surveys. Important for 10y rates and curves.
• Economic data surprises in developed markets, especially the US: Relevant for USD FX pairs and fixed income.

Main Market Factors

MarFA™ Trading identifies the following market factors:

• US 5y real yields: Explains 46% of the total variance of the asset universe and is important across rates, equities, FX, credit, and commodities.
• US 10y term premium: Particularly important for global 10y rates.
• Investor risk appetite: Captured by the BNPP Risk Premium Index (BNPSGRP Index), most important for EM equities and gold.

Key Asset Valuation Signals

Overvalued Assets (MarFA™ Macro)

• Equities:
  • MSCI World: +3.0% overvalued
  • S&P 500: +3.0% overvalued
  • Nikkei 225: +3.4% overvalued
  • FTSE 100: +2.4% overvalued
  • TSX (Canada): +1.8% overvalued
  • Oil, WTI: +11.2% overvalued
  • Gold: +3.5% overvalued
  • Platinum: +7.3% overvalued

Undervalued Assets (MarFA™ Macro)

• Equities:

  • USDKRW: -3.0% undervalued
  • USDZAR: -7.7% undervalued
  • MSCI Emerging Markets: -1.0% undervalued
  • MSCI New Zealand: -1.7% undervalued
  • MSCI China: -1.8% undervalued
  • MSCI South Africa: -1.8% undervalued
  • MSCI Turkey: -3.0% undervalued

• Credit:

  • US investment grade credit: -0.8% undervalued
  • Eurozone investment grade credit: -0.7% undervalued
  • EM credit: -0.7% undervalued

• Rates:

  • US 10y yield: +11.3bp overvalued
  • France 10y yield: +10.7bp overvalued

Overvalued Assets (MarFA™ Trading)

• FX:
  • GBPUSD: +1.2% overvalued
  • USDTRY: +1.3% overvalued
  • EURUSD: +1.1% overvalued
  • Germany 2s10s: +3.3bp overvalued
  • EURCHF: +0.5% overvalued
  • UK 2yr yield: +4.8bp overvalued
  • Switzerland 10yr yield: +0.5bp overvalued
  • MSCI World: +0.7% overvalued
  • S&P 500: +0.8% overvalued

Undervalued Assets (MarFA™ Trading)

• FX:
  • USDJPY: -0.6% undervalued
  • EURPLN: -0.2% undervalued
  • MSCI Turkey: -3.0% undervalued
  • Italy 10yr yield: -7.7bp undervalued
  • UK 2s10s: -2.5bp undervalued
  • MSCI Australia: -0.5% undervalued
  • Canada 2s10s: -1.5bp undervalued

Trading Strategy Performance

• A strategy of buying undervalued assets and selling overvalued ones based on MarFA™ Macro has a Sharpe ratio of 0.5 since its launch in September 2016.
• Based on MarFA™ Trading, the same strategy has a Sharpe ratio of 1.45.

Key Recommendations

• Monitor macro factors such as economic activity, inflation expectations, and data surprises in developed markets.
• Track market factors like US 5y real yields, US 10y term premium, and investor risk appetite.
• Watch for convergence in overvalued and undervalued assets:
  • Equities in MSCI World, S&P 500, and Nikkei are expected to converge within 1-2 months.
  • USD and certain FX pairs are expected to converge within 1-2 weeks.

Legal & Disclosure Notes

• This document is non-independent research and is intended for Professional Clients and Eligible Counterparties.
• It may contain "Research" under MiFID II, which is only available to those who have signed up to BNP Paribas Global Markets Research packages.
• It is not investment research for the purposes of MiFID II.
• The document is a marketing communication and may not be used by persons who are not Relevant Persons.
• There are potential conflicts of interest due to BNPP's involvement in trading and investment banking activities.
• The indicative prices and performance data are based on simulations and may not reflect actual market conditions.
• The document is not a prospectus and does not constitute an offer to buy or sell securities.