20160219-法国巴黎银行-EM_Strategy_Plus_28页_4mb

EM Strategy Summary: 19 February 2016

Core Content

BNP Paribas has revised its Emerging Markets (EM) growth forecasts, with Latin America (Latam) being the most affected. The bank anticipates a 0.7% GDP fall in 2016 and 1.7% growth in 2017 for Latam, excluding Venezuela. In contrast, Asian growth forecasts remain unchanged for 2016, but the 2017 Chinese growth forecast has been cut by 0.6pp to 6.1%. In CEEMEA, Russia's 2016 growth forecast has been reduced by 1.1pp to -1.8% due to oil weakness.

The G20 meeting in Shanghai is expected to address EM currency weakness, with a focus on coordinated responses. The bank also highlights the importance of oil developments, as the recent agreement between Saudi Arabia and Russia to freeze production rather than cut it has led to mixed results in oil prices. S&P downgraded several countries, including Kazakhstan and Saudi Arabia, but these downgrades had little impact on asset performance.

Key Themes

Asia

• FX Forecast Changes: Asian currencies are expected to range trade in the short term, but may give back gains if Fed rate hike expectations rise or global growth weakens.
• FX Positioning: Investors have reduced long USD/Asia positions, particularly against CNH, SGD, and MYR. The market remains the most bearish on the RMB and RMB-proxy currencies (KRW and TWD).
• Central Bank Actions: The Bank of Korea kept rates on hold, while Bank Indonesia cut both policy rates and reserve requirements, raising concerns about the FX outlook.
• Recommendations: Continue to recommend long positions in Indonesian government bonds and a receiver in 2y SGD IRS versus a payer in USD IRS. Also, recommend long USDTWD and USDCNH forwards, with the latter via a covered call.

CEEMEA

• Monetary Policy Meetings: Upcoming meetings in Israel, Hungary, and Turkey will be key, with the Bank of Israel likely to keep rates on hold.
• Currency Pair: Recommend shorting the RUB against the TRY due to RUB's oil dependency and TRY's underperformance in EM markets.
• Credit Recommendations: Maintain a recommendation to buy 11.03.2019 eurobonds against the 3y US Treasury and to buy the 5y basis. Also, highlight the potential for further PLN weakness.

Latam

• Mexico: The FEC has changed its FX intervention strategy to discretionary direct sales, which is expected to support the MXN. The MXN is considered undervalued, and the bank recommends long MXN trades through options.
• Brazil: The DI curve is expected to continue falling, with a recommendation to receive DI Jan-19 at 15.55% and a stop loss at 15.85%. The bank also recommends a 6m USDMXN digital put at 17.50.

New Recommendations

Trade Review

FX Positioning and Forecast

Asian FX Forecasts

FX Positioning Trends

• USDSGD: Investors have reduced long USD positions, with the Z-score showing a decline.
• USDMYR: Similar trends in FX positioning, with a focus on the impact of market sentiment and volatility.
• USDINR: The positioning index indicates a mixed outlook, with some short-term volatility.
• USDIDR: The positioning index shows a continued bearish stance on the IDR against the USD.

Conclusion

The EM Strategy Plus report highlights the mixed outlook for emerging markets, with Latin America facing the most significant challenges. Asian currencies are expected to range trade, but could give back gains if the Fed tightens policy or global growth worsens. The G20 meeting in Shanghai is a key event, likely to address EM currency weakness. In CEEMEA, the RUB is recommended for shorting against the TRY due to oil dependency and geopolitical risks. In Latam, the MXN is seen as undervalued and long positions are recommended, while Brazil is expected to see further declines in the DI curve. The report includes a series of new recommendations and trade reviews, emphasizing the importance of FX and interest rate strategies in the current market environment.