20160422-法国巴黎银行-EM_Strategy_Plus_26页_4mb

EM Strategy Plus Summary - 22 April 2016

Core Content

This report outlines the current outlook and trade opportunities for emerging markets (EM) and highlights key developments in monetary policy and market dynamics across various regions.

Main Points

Emerging Markets Outlook

• Positive Sentiment: EM is expected to trade positively due to ultra-accommodative G4 central banks and improved China growth.
• Near-term Risks: Some risks, such as China's debt burden and Greece-related issues, have eased, although UK referendum remains a concern.
• Consolidation Expected: Investors may see consolidation in EM markets ahead of the US FOMC and Bank of Japan meetings.
• Performance: EM local currency bonds performed well in March, with Brazil leading the way at +7.7%, followed by Peru and Indonesia.
• Fund Positions: Many funds had overweight positions in EM local currency bonds, indicating strong confidence.

IDR Bonds: Positive Outlook

• Policy Reference Rate Change: Indonesia's central bank (BI) changed its policy reference rate, sparking debate about its monetary stance.
• Rate Cuts Expected: Our economists see potential for 50bp of BI rate cuts in H2 2016 if deposit rate caps are not adjusted.
• Curve Positioning: Recommend positioning on the front end of the IDR bond curve, which is expected to outperform due to policy and macro-prudential easing.

CEEMEA: Too Early for U-turn in Flows

• FX Setback: CEEMEA currencies, particularly low-yielding ones, experienced a setback due to lower US and European inflation breakevens.
• Inflation Breakevens: US and European inflation breakevens are well below targets and 2015 levels, indicating no immediate U-turn in flows into EM.
• Cumulative Flows: Cumulative inflows into EM have slowed, and the correlation with US inflation breakevens has weakened.

Poland: Short EURPLN

• EURPLN Rally: A Bloomberg report on Franklin Templeton reducing exposure to Polish government bonds sparked a rally in EURPLN.
• Short-term View: The rally is expected to be short-lived due to Poland's surplus in external funding capacity.
• Recommendation: Sell EURPLN at 4.35, targeting 4.28.

Turkey: Cutting Rates, Continuing to Sell FX

• MPC Rate Decision: The rate decision eliminated tail risks related to overly accommodative monetary policy.
• Inflation Report: The governor's Inflation Report presentation will guide the MPC's easing stance.
• Political Risk: Legal immunity issues for MPs remain in the spotlight, with potential implications for the AKP's parliamentary majority.

Colombia: COP Appreciation

• Structural Justification: COP appreciation is justified by structural factors, but the pace is too fast.
• Overbought Condition: The peso is currently overbought, with the market price around 5% above fair value.

Brazil: IR/DI Strategy

• DI Curve Rally: The DI curve has rallied, pricing in more rate cuts than expected.
• Recommendation: Increase DI Jan17 payer position due to the curve being below fair value and favorable technical conditions.

Key Recommendations

Additional Notes

• IMF Update: The IMF raised China's growth forecast to 6.5%, while cutting global growth forecasts to 3.2%, indicating a more cautious stance on global growth.
• China Debt Risk: Chinese bank loans at risk are estimated at 7% of GDP, which is manageable for the public sector.
• EM Carry Strategy: The report remains constructive on carry trades and recommends positions in countries where rates are likely to continue to fall.
• Market Sentiment: Despite some setbacks, EM sentiment remains positive, supported by accommodative monetary policies and China's growth improvement.

Conclusion

The report highlights a generally positive outlook for EM, with continued support from G4 central banks and China's growth. While some near-term risks have eased, the potential for further rate cuts and the structural justification for COP appreciation are noted. The report recommends specific trade positions, particularly in IDR bonds and carry trades, and advises caution on EURPLN and FX positions in Turkey and Poland.