德银-新兴市场-宏观策略-新兴市场月报：政治活动-20180122-55页_1mb

EMEA Monthly Politicking Summary

Core Content Overview

This report provides an analysis of economic and political developments in EMEA (Europe, Middle East, and Africa) for January 2018, focusing on inflation, growth, monetary policy, and currency outlooks. It also outlines key investment recommendations and forecasts for the region, including FX and Fixed Income strategies.

Main Countries and Key Points

South Africa

• Political Outlook: The ANC elections are concluded, and Ramaphosa, a more market-friendly leader, has been elected party President. This is expected to bring positive sentiment and growth.
• Zuma Recall: There is a possibility that Zuma may be recalled as State President before the 8 Feb State of the Nation Address, which is positive for market stability.
• Inflation and Policy: The SARB has revised inflation forecasts downward, closer to the estimates. Inflation risks persist, and rate cuts are unlikely even in a positive scenario. The SARB is expected to keep rates at 6.75% for the rest of the year.
• Currency Outlook: ZAR is expected to rally gradually due to improved trade flows, falling inflation, and positive macroeconomic and fiscal factors. The report recommends long ZAR vs. USD and buy 3m USDTRY digital puts.

Turkey

• Political Risks: The main risks are geopolitical (military intervention in Syria) and domestic (extension of the state of emergency). The CBT is likely done with tightening, and policy rates have peaked.
• Inflation: CPI is expected to remain in double-digits for the year, with a risk of renewed TRY depreciation, which could trigger a negative feedback loop.
• Currency Outlook: TRY has lagged the EM rally and offers significant retracement potential due to low valuations, light positioning, and falling inflation.
• Investment Recommendation: Enter fwd starting XCCY steepeners.

Russia

• Economic Outlook: Growth is expected to improve in 2018, with inflation remaining below target in H1-2018. The CBR is anticipated to ease by 150bps this year.
• Sanctions: The US Treasury report on extending sanctions is unlikely to be a major event, with the possibility of extending to individuals and companies, but not sovereign debt.
• Monetary Policy: The report suggests staying long in OFZs and extending duration.

Central and Eastern Europe (CEE)

• Growth and Inflation: Positive spillovers from the Eurozone and accommodative macro policies are expected to support regional growth at or above potential.
• Czech Republic: Inflation is expected to remain above target, peaking in mid-2018. The CNB is likely to hike 2 times in 2018.
• Hungary: CPI is expected to oscillate below the 3% target due to VAT cuts and administered price adjustments. The NBH is expected to maintain an ultra-dovish stance.
• Poland: Inflation is expected to flirt around the 2.5% target in H2 2018. A preemptive rate hike is expected by the end of 2018, followed by a likely move towards 3.0% in 2019.
• Investment Recommendations:
  • Czech Republic: Keep a bearish bias on local rates and enter fwd starting IRS steepeners (2Y2Y - 5Y5Y).
  • Poland: Expect 10Y bonds vs. bunds to outperform.
  • Hungary: Maintain loose monetary conditions.
  • Romania: Remain bullish on local bonds but reduce duration to the 5Y part of the curve.

Egypt

• Political Outlook: Presidential elections in March are expected to go smoothly.
• Economic Outlook: Less optimistic on inflation and domestic demand recovery. However, fiscal and current account balances are expected to improve over the next two years, supporting economic growth.
• Investment Recommendation: The report recommends long new Oman 48s and 28s, long Turkey 27s, and 10s30s flatteners in Egypt and Kazakhstan.

EMEA FX Outlook

• Q1 Opportunity: Q1 is seen as a window for EM FX appreciation due to synchronized growth and cheap valuations.
• Key Currencies:
  • ZAR is expected to outperform due to improved sentiment, trade flows, and policy.
  • TRY is undervalued and offers retracement potential.
  • ILS is overvalued, and the report suggests short ILS vs. EUR due to interventions from exporters and over-hedging by pension funds.

EMEA Fixed Income Strategy

• Top Trades:
  • Russia: Stay long in OFZs, extend duration.
  • Turkey: Enter fwd starting XCCY steepeners.
  • South Africa: Keep a bullish bias on local rates, best expressed in 10Y-15Y bonds.
  • Israel: 5Y5Y ILS receiver vs. US-swap and vs. HUF.
  • Romania: Remain bullish on local bonds, reduce duration to 5Y.
  • Poland: Expect 10Y bonds vs. bunds to outperform.
  • Czech Republic: Keep a bearish bias on local rates, enter fwd starting IRS steepeners (2Y2Y - 5Y5Y).

Key Forecasts and Tables

Key Economic Forecasts (2017F, 2018F, 2019F)

10Y Government Bond Yield Forecasts

Projected Policy Rates

Conclusion

The report highlights a cautiously optimistic outlook for EMEA, with South Africa and CEE countries expected to benefit from political stability and improved macroeconomic conditions. Turkey and Russia face political and economic risks, while Egypt remains a concern due to inflation and demand issues. The EMEA FX market is seen as a good opportunity, with ZAR and TRY showing potential for appreciation. Fixed Income strategies emphasize long positions in certain countries and specific bond types, with caution on inflation and policy risks.