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EM STRATEGY | DAILY SUMMARY - 29 June 2018

Core Content Overview

This document is a daily market update from BNP Paribas Emerging Markets Strategy team, covering key events and recommendations for the week of 29 June 2018. It includes insights on central bank decisions, FX movements, sovereign bond yields, and market outlooks for various emerging markets.

Key Market Events and Views

Indonesia

• Expected Policy Decision: Bank Indonesia is expected to raise the policy rate by 25 basis points at its MPC meeting.
• Reasoning: The rate hike is intended to counter the depreciation of the Rupiah, driven by rising trade tensions and emerging market weakness.
• Market Impact: The central bank's move is likely to stabilize the currency but may not be sufficient to fully reverse the depreciation trend.

Turkey

• Non-Deliverable Forward Auction: The CBRT will release the auction schedule for Q3 today or over the weekend.
• Current Volume: The auction amounts have remained unchanged since May, and we expect no additional support for the Turkish Lira (TRY).
• Government Borrowing: The Treasury will announce a high borrowing program for July-September, following a heavy June schedule.
• Currency Pressure: Selloff pressure on the TRY suggests continued challenges for the currency.

China

• PMI Release: The official June PMI will be published on 30 June.
• Deleveraging Strategy: The strategy remains under scrutiny due to rising bond defaults, falling total social financing, and concerns about funding strains on private firms.
• Recommendation: Authorities should focus on controlling credit and liquidity rather than adopting loose monetary policy.
• Reforms Needed: Reforms in SOEs, fiscal relations, and the property sector are required to address soft budget constraints and implicit guarantees.

Poland

• Inflation Forecast: The National Bank of Poland is expected to lower its inflation forecasts for 2018-19 in July’s report but raise the projected path for 2020.
• Shadow Forecasts: These forecasts are based on a model similar to NECMOD, used by the NBP.
• CPI Outlook: We expect CPI inflation to be slightly above target in 2019 and to rise further above 3% in 2020.

Investment Recommendations

Peru Sovereign Bonds

• Recommendation: Buy Peru 2026 Sovereigns (Siberanos) at a yield-to-maturity of 5.27%.
• Target Yield: Initial target is 5.00%.
• Rationale: The Soberanos curve is currently too steep, making these bonds an attractive option for real money investors seeking yield with relatively low risk.

Strategy Team Contacts

Production and Editorial Team

Legal Disclaimer

• Non-Independent Research: This document is non-independent research and may be subject to conflicts of interest.
• Marketing Communication: It is intended for Professional Clients and Eligible Counterparties under MiFID II.
• No Investment Advice: It does not constitute investment, financial, legal, or tax advice.
• Confidentiality: The document is confidential and must not be distributed without prior written consent.
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Online Resources

• BNP Paribas Global Markets Website: www.globalmarkets.bnpparibas.com
• BNP Paribas Strategy Website: [Strategy Website](Strategy Website)

Bloomberg References

• Fixed Income Research: BPFR
• G10 Interest Rate Research: BPBS
• Emerging Markets Research: BPFR
• Market Economics: BPEC

United States Disclosures

• Options: Complex instruments with high risk, suitable only for sophisticated investors.
• ETFs: May involve tracking error, currency, and geopolitical risks.
• Convertibles and Unregistered Securities: May be restricted and only available to Qualified Institutional Buyers or non-US persons.
• Distribution Restrictions: Limited to institutional investors as per FINRA and SEC regulations.

Regulatory Information

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• Italy: Regulatory details are not fully provided in the text.