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EM STRATEGY | DAILY SUMMARY - 23 March 2018

Core Content Overview

This document is a daily summary of Emerging Markets (EM) strategy insights from BNP Paribas, focusing on key events and market movements across CEEMEA, Latam, GCC, and Asia. It also includes contact information for EM strategy teams and legal disclosures.

Global Market Outlook

• Risk Sentiment: Deteriorated due to US-China trade tensions and the appointment of John Bolton as national security advisor.
• Equity and FX Impact: Global equities sold off, with KRW and TRY showing the most weakness.
• Tariff Announcement: Trump announced 25% tariffs on USD 50-60 billion of Chinese imports.
• China's Response: Limited to USD 3 billion in retaliatory tariffs.
• Key Concern: Escalation of trade tensions could be problematic for EM economies.
• Nikkei Performance: Fell by 4.5% in response to the risk-off sentiment.
• JPY Demand: Increased due to the trade-related risk-off sentiment.

CEEMEA Region

• Focus Events:
  • Moody's rating review on South Africa (no downgrade expected).
  • Russian Central Bank (CBR) expected to cut rates by 25 basis points (bps) to 7.25%.
• South Africa Outlook:
  • Current rating: Baa3 for both local and external debt.
  • Moody's is likely to require improved growth, institutional capacity, and debt metrics before changing the outlook from negative to stable.
  • Possible review dates: 12 October (unlikely) or Q1 2019 (more likely).
  • Concerns over populist rhetoric around land expropriation without compensation and constitutional property rights.
• Other Ratings: Congo, Croatia, Ghana, Kenya, Poland, Latvia (S&P), Mozambique (Fitch), and Uganda (Moody's) are also being reviewed.
• TRY FX Analysis:
  • USDTRY spiked over 2% overnight but settled at 3.96.
  • Concerns over liquidity and risk-off sentiment contributed to the weakness.
  • TRYJPY long positions may have been stopped out due to the lira's underperformance.
  • The TRY cross-currency curve has steepened, with 120bps of hikes now priced in over the next 12 months.
  • The CBRT may not deliver on tightening expectations, which could make the current steepness unsustainable.

GCC Region

• Rate Hikes:
  • UAE, Bahrain, and Kuwait raised policy rates by 25bps, in line with the Fed's action.
  • Saudi Arabia Monetary Authority did not raise rates this week as it had already done so last week.
  • Oman also did not hike rates.

Latam Region

• Strategy Adjustment:
  • Reduced exposure to Mexican Udibonos, particularly 2019s.
  • Increased stake in nominal rates, entering a fly position via TIIE 2s5s7s.
• Reason: Reflects the current risk-off environment and interest rate dynamics in the region.

Asia Region

• Singapore CPI Data:
  • February CPI inflation at 0.5% y/y.
  • Core inflation at 1.7% y/y, which is a key consideration for policymakers ahead of the April monetary policy meeting.
• Other Central Banks:
  • Philippines, Taiwan, and Indonesia left rates unchanged as expected.

Contacts

Legal Notice

• This document is a marketing communication and non-independent research.
• Not investment research for MiFID II purposes.
• No guarantee of accuracy or completeness of the information.
• Not intended to be a prospectus or public offering.
• No liability is accepted for any use of the document or its content.
• Confidentiality: The information is provided on a strictly confidential basis and may not be distributed without prior written consent.
• Conflict of Interest: BNPP may have financial interests in the mentioned issuers and may engage in transactions inconsistent with the views expressed in this document.

United States Disclosures

• Options: Complex instruments not suitable for all investors; only for sophisticated investors.
• ETFs: Carry risks including tracking error, currency, and geopolitical risks.
• Convertible Securities: May be restricted securities and only available to Qualified Institutional Buyers (QIBs) or non-US persons under Regulation S.
• Distribution Restrictions: Limited to institutional investors under FINRA Rule 2210 or major U.S. institutional investors under Rule 15a-6.
• BNPPSC: Registered with SEC, CFTC, FINRA, and NFA; member of NYSE and SIPC.

Online Resources

• BNP Paribas Global Markets Website: www.globalmarkets.bnpparibas.com
• BNP Paribas Strategy Website: www.bnpparibas.com
• Bloomberg Research Packages:
  • Fixed Income Research BPFR
  • G10 Interest Rate Research BPBS
  • Emerging Markets Research BPFR
  • Market Economics BPEC

Final Notes

• The document is for informational purposes only and does not constitute an offer to sell or purchase any financial instruments.
• Indicative prices are based on internal models and may vary from other sources.
• Performance data is simulated and not indicative of future results.
• Confidentiality and legal compliance are emphasized throughout the document.