20171110-法国巴黎银行-GLOBAL_WEEKLY__EM_STRATEGY_PLUS_37页_4mb

EM Strategy Summary - 10 November 2017

Core Content

This document outlines the Emerging Markets (EM) strategy recommendations and market analysis for the week of 10 November 2017, produced by the BNP Paribas EM Strategy Team across multiple branches and strategists. The analysis includes insights on FX, interest rates, credit, and macroeconomic indicators across Asia, CEEMEA, and Latin America (Latam).

Main Themes and Recommendations

1. KRW (South Korea Won)

• Core View: The KRW is expected to appreciate further, driven by trade momentum and policy tightening, potentially reaching 1050 against the USD next year.
• Recommendation: Buy KRW via a diversified funding basket of USD, EUR, and JPY.
• Positioning: Suggests a 6-month long position with an entry point of 100, target of 105, and stop loss at 97.0.
• Risks: Geopolitical tensions, potential USD strength, and central bank intervention could impact the trade.

2. China: After the Sell-off in Rates

• Core View: Despite PBoC liquidity injections, the bond market is facing a buyers' strike, and corporates are increasingly relying on bank loans and shadow banking.
• Recommendation: Buy interbank short-term NCDs issued by top-tier Chinese banks, hedged with USDCNH cross-currency swaps.
• Market Dynamics: PBoC's rate hikes are likely to be delayed, and market sentiment remains weak. The 10-year government bond yield has risen, while credit spreads have only slightly tightened.
• FX Trends: Non-financial entities are now net sellers of FX, with exporters playing a significant role. Offshore investors are increasing exposure to RMB bonds.

3. Asian FX Positioning: Fairly Neutral

• Core View: FX positioning in Asia is fairly neutral after a reduction in long positions.
• Key Observations:
  • SGD, THB, and MYR remain modestly long.
  • INR and IDR have seen the largest reductions in long positions.
  • CNH speculative flows have balanced out, with no clear direction.
  • PHP and KRW are least owned due to depreciation pressure and geopolitical risks.

4. Turkey: Breaking Bad

• Core View: The CBRT is unlikely to raise rates soon, leading to a flattening of the short end of the CCY curve.
• Recommendation: Expect TRY to continue its depreciation trend.

5. Argentina: Carry for Now, Protection for Later

• Core View: The ARS carry is now more attractive following the BCRA rate hike.
• Recommendation: Increase long ARS exposure, while hedging against potential risks.

6. Brazil DI: Value in the Short End

• Core View: The DI curve is pricing in around 175bp of hikes in 2018, but BNP Paribas expects the CCB to cut rates twice and hold thereafter.
• Recommendation: Recommend receiving Brazil DI Jan19 and a 9m IBR payer against an 18m receiver in Colombia.

7. Chile: Flattener with a High Positive Carry

• Core View: The central bank is expected to maintain stable monetary policy, leading to a flattening of the CLPxCAM 1s2s curve.
• Recommendation: Maintain a flattener position with a high positive carry.

8. Colombia: Short-end Flattener with High Positive Carry

• Core View: The IBR curve is expected to flatten significantly due to falling inflation and policy expectations.
• Recommendation: Recommend a 9m IBR payer against an 18m receiver.

9. FX Positions

• Long KRW vs G3 basket: USD10m, entry at 100, target at 105, stop at 97.0.
• Short USDARS via 3m NDF: USD20.0mn, entry at 18.63, target +7%, stop -3.5%.
• Long USDTRY: USD10mn, entry at 3.85, target at 3.95, stop at 3.82.
• Receive TRY 3x6 CCY FRA: USD5k, entry at 13.52, target at 13.00, stop at 13.70.

10. Options and Credit Positions

• Buy Argentina 5y CDS vs Sell Latam CDS basket: USD30.0mn, entry at 124, target at 175, stop at 95.
• Buy Turkey '45s (spread over swaps): USD5mn, entry at 344 bp, target at 370 bp, stopped out with a -26bp loss.
• Long Bocan (Badlar linked) March 2018: USD5mn, entry at 102.00, target at 104.46, stop at 104.46.

Key Information

• Market Volatility: The USD path is expected to be choppy, with potential strength versus majors due to tax reform and seasonality.
• China's Credit Crunch: Credit growth is slowing, and corporates are turning to bank loans and shadow banking, which could hurt economic growth.
• Turkey's External Imbalances: The current account deficit is expected to widen, adding pressure on the TRY.
• Latin America: Focus on Brazil's social security reform, Argentina's carry trade, and Colombia's flattener opportunities.
• CEEMEA: Expect continued strong growth, with particular emphasis on Hungary, Poland, and the Czech Republic.
• RMB FX Dynamics: Non-financial entities are now net sellers, and the FX market is becoming more balanced. Offshore investors are increasing RMB bond exposure.

What's Up Next Week?

• Asia: China's October retail sales and industrial production data, Bank Indonesia's policy rate decision, and GDP releases from the Philippines and Malaysia.
• CEEMEA: Q3 GDP releases for CEE3 countries, including Hungary, Poland, and the Czech Republic. Turkey's bond issuance and current account deficit data.
• Latam: Continued focus on Brazil's social security reform and Chile's monetary policy decision.

Summary of Positions