20170120-法国巴黎银行-EM_STRATEGY_PLUS_29页_3mb_3mb

EM STRATEGY PLUS - Summary

Core Content

This document outlines the Emerging Markets (EM) Strategy Plus report from BNP Paribas for the week of 20 January 2017. It provides insights into EM FX and credit trends, highlights key events, and presents a list of current trades and recommendations.

Main Themes and Views

EM FX Outlook

• EM currencies are expected to face considerable headwinds in 2017 due to the prospect of further US rate hikes, fiscal expansion, and uncertainties around trade policies and China's currency management.
• However, many EM currencies are currently undervalued, especially CEEMEA and Latam currencies, which are below long-term fair-value levels.
• EM FX and EM credit have historically performed well in February, March, and April, despite a mixed January.
• Carry differentials in EM remain significant, making a near-term negative stance on EM FX unlikely.

Key Events and Catalysts

• India: The Union Budget and state elections are key market catalysts. The budget is expected to be expansionary, potentially supporting USDINR.
• Singapore: The front end of SGD IRS has converged with the US curve, and the back end is expected to follow.
• China: The CNH-CNY spread has been negative for over two weeks, and may converge further before the Chinese New Year, though a reversion is not certain. Market interest rates are expected to rise post-holidays.
• Turkey: The CBRT is expected to hike the 1-week repo rate by 50bp to 8.5% and the ON lending rate by 150bp to 10.0% at the MPC meeting. A Fitch downgrade could lead to a 100-150bp drop in Turkish banks' capital ratios.
• Brazil: The DI curve is expected to continue flattening, and we recommend receiving DI Jan18sJan20s. The real is also seen as potentially supported by improved foreign investment and trade balance.
• Mexico: The current dynamics are similar to Brazil in Q1 2016. Mexican assets are starting to look attractive, and we recommend receiving the 5y5y TIIE spread over USD swap.

New Recommendations

Trade Review

Interest Rates

• Receive ZAR 5y5y: PV01/Notional USD 5k, Entry 8.70%, Target 8.40%, Stop 8.90%, P/L -12 bp
• Receive 5Y5Y SGD IRS vs. 5Y5Y USD IRS: PV01/Notional USD 10k, Entry 0.55%, Target 0.20%, Stop 0.70%, P/L 0 bp
• INR NDOIS 2Y5Y flattener: PV01/Notional USD 10k, Entry +29 bp, Target +10 bp, Stop +37 bp, P/L +1 bp
• Receive 5Y5Y Mexico TIIE spread over US Swap: PV01/Notional USD 6k, Entry 587, Target 557, Stop 616, P/L -1 bp

FX

• Buy 12m USDTWD NDF: PV01/Notional USD 10mn, Entry 31.59, Target 32.5, Stop 31.1, P/L -0.92%
• Buy 12m USDINR NDF: PV01/Notional USD 10mn, Entry 70.75, Target 73.0, Stop 69.5, P/L +0.64%
• Short CLPCOP via 1m NDF: PV01/Notional USD 5mn, Entry 4.516, Target 4.245, Stop 4.696, P/L +1.07%

Options

• Buy 3m USDJPY / USDKRW dual digital (112 / 1200): Payout USD 500K, Entry 9.00%, Target 6.00%, P/L -3.00%
• Long USDMXN Put k=20.10 / exp: 19 April 2017: PV01/Notional USD 10mn, Entry 1.96%, Target 0.34%, P/L -1.62%
• Long USDBRL Call k=4.00 / exp: 03 February 2017: PV01/Notional USD 50mn, Entry 0.67%, Target 0.00%, P/L -0.67%

Credit

• Buy Turkey 5y CDS: PV01/Notional USD 10mn, Entry 290, Target 265, P/L -5 bp
• Sell Latam CDS basket (Argentina, Brazil, Colombia, Mexico): PV01/Notional USD 10mn, Entry 271, Target 305, P/L +27 bp

Total Performance

• Total P/L: 4574 kUSD
• Rates: 3593 kUSD
• FX: 1689 kUSD
• Options: -829 kUSD
• Credit: 121 kUSD

What's Up Next Week?

Asia

• Chinese New Year holidays will start on 27 January, leading to idiosyncratic volatility in FX and money markets. The PBOC's liquidity injections and monitoring are expected to keep things stable.
• Q4 2016 GDP data for Taiwan and the Philippines will be released, likely confirming a solid economic upturn.
• South Korea's business surveys will be closely watched for BOJ policy decisions.

CEEMEA

• The NBH, SARB, and CBRT will hold monetary policy meetings. The NBH is expected to keep the policy rate at 0.90%, and the SARB at 7.00%.
• Fitch is set to review Turkey's sovereign rating on 27 January, with a downgrade to junk widely expected.

Latam

• Brazil's external sector report will be released, likely showing a strong balance of payments and supporting the BRL.
• Mexico's CPI data for January is expected to show increased inflation due to energy price hikes.
• Colombia's central bank is expected to cut policy rates by 25bp following its surprise cut in December.

India: Focus on Local Drivers

• The Union Budget is expected to be expansionary, with a fiscal deficit range of 3.0%-3.5% of GDP.
• The rupee is more closely correlated with foreign equity flows than debt flows, and USDINR is expected to trade on equity cues.
• The NDOIS curve is seen as offering value in 2y5y flatteners.

Singapore: Receive 5y5y SGD IRS

• The front end of the SGD IRS curve has almost fully converged with the US curve.
• The back end is expected to catch up with the compression at the front end.