20140519-巴黎银行证券-Latin_America_Weekly_Strategy_48页_1mb

Latin America Weekly Strategy Summary

Core Content

This document provides a comprehensive analysis of the Latin America market strategy as of May 19, 2014, with a focus on the changes since December 2013, foreign exchange forecasts, current market positions, and the dynamics of fund flows in the region and emerging markets.

Key Changes Since December 2013

• The UST (U.S. Treasury) yield scenario for 2014 has not materialized as previously expected.
• Liquidity has not been shrinking, and the rotation from emerging markets (EM) to developed markets (DM) has halted.
• The search for yield continues, indicating a structural shift in investment behavior.
• The UST 10-year yield has remained relatively stable at around 2.50%, compared to 3.00% in December 2013.
• U.S. growth has plateaued, with monetary policy remaining accommodative due to Yellen's leadership.
• The ECB is likely to implement rate cuts and/or quantitative easing (QE) in the future.

FX Forecasts and Current Positions

Forecasts for BRL and COP have been improved, while others remain unchanged.

Fund Flows Analysis

• From May 2013 to mid-January 2014: Rotation from EM to DM continued, driven by structural factors rather than just Fed policy.
• From February 2014 to mid-April 2014: Encouraging dynamics observed, suggesting a potential turning point in the outflow cycle.
• Since mid-April 2014: Positive signs of a turnaround, especially in Brazil's equity flows.
• Equity inflows in Brazil: +$1.7bn over the last 8 weeks; estimated allocation $86.8bn (up from $77.6bn).
• Bond inflows in Brazil: +$1.65bn over the same period.
• Institutional investors (excluding ETFs): +$968m into bond funds since March 2014, with a 7th consecutive week of positive inflows.
• Mexico: +$943m in institutional flows since March 2014.
• Total flows into equity and bond funds: +$802bn since March 2014.

Global Risk Premium and EM Convergence

• Global risk premium shows a neutral bias.
• EMs are gradually converging to U.S. corporate high yield (HY) BBB yields, which have dropped to 3.84% from 4.60% in December 2013.
• The UST remains the key factor influencing EM flows, with low volatility and stable yields continuing to attract investment.
• The differentiation among Latin American countries (Mexico, Chile, Colombia, Brazil) is increasing, with a focus on tactical opportunities.

BRL Strategy and Political Risk

• The Brazilian real (BRL) has seen a flattening of the swap curve, particularly on the long end.
• Current positions include:
  • Short USDCLP
  • Long Colombia 23s, short Brazil 23s (with a profit of +25bps)
  • Pay rates Swap CLPxCAM 3y and receive rates Swap CLPxCAM 5y (profit +14bps)
  • Pay rates Swap CLPxCAM 10y (new, model-driven)
• Political risk embedded in BRL is not yet significant, with the expectation of a gradual adjustment in volatility in the second half of 2014.

Brazil Domestic Rates Scenarios

• The document outlines various scenarios for Brazil's domestic rates, emphasizing the need for a strategic approach given the current market conditions.

Brazil Swap Curve Analysis

• The swap curve has flattened excessively on the long end.
• Current positions and strategies are detailed, highlighting the importance of monitoring the curve for potential shifts.

CLP and MXN Analysis

• Updated models and scenarios for CLP and MXN are provided, showing a trend of increasing inflows and a potential shift in investment dynamics.

Emerging Markets Overview

• Non-resident inflows into Brazil since December 2013: R$18bn.
• Total inflows into EMs since May 2013: +$13.453bn.
• Estimated allocation: $105.4bn.
• Institutional flows (excluding ETFs): +$8968m into bond funds since March 2014.
• EM fund flows: Positive trends in equity ETFs and fixed income instruments, indicating a shift in investment preferences.

Economic Indicators and Models

• The Conference Board Leading Index and the model values are used to predict economic recovery, despite some plateauing in February.
• The U.S. economic surprise model has shown positive trends since March, with increasing traction.

Summary of Key Points

• Investor Behavior: Shift from EM to DM has slowed, with increased flows into EMs, especially Brazil.
• UST Influence: UST yield stability and low volatility continue to drive EM investment.
• Market Dynamics: Encouraging signs of a turnaround in Latin America, with a focus on tactical opportunities.
• Strategic Positions: Short USDCLP, long Colombia 23s, and specific swap strategies.
• Political Risk: Minimal impact on BRL at present, with continued monitoring needed.
• Volatility Expectations: Expected to rise gradually in the second half of 2014.
• Differentiation: Increasing among Latin American countries, with a structural neutral view for the region.