巴黎银行-新兴市场-宏观策略-新兴市场策略：市场对土耳其、印度尼西亚和泰国选举的预期-20190315-9页_1mb

EM Strategy Summary: Market Expectations for Elections in Turkey, Indonesia, and Thailand

Core Content

This document analyzes market expectations for the outcomes of presidential elections in Turkey, Indonesia, and Thailand using FX implied volatility data. It outlines the methodology used to estimate the probabilities of currency movements based on market sentiment and provides strategic insights for investors.

Key Findings

Turkey

• Election Date: 24 March 2019
• Market Expectations:
  • Probability of TRY Appreciation: 75.7% (0.8% movement)
  • Probability of TRY Depreciation: 24.3% (2.6% movement)
• Market Outlook:
  • The base case scenario for the TRY is a stable currency.
  • The probability of appreciation has increased since early February, from 63% to 76%, indicating a growing confidence in a muted election impact.
  • The recent TRY sell-off may have increased the likelihood of a stronger currency post-election.
• Implied Volatility:
  • Implied volatility for TRY has remained well below short-term rates, suggesting limited market risk.
  • The forward jump PDF (probability density function) reflects a shift in expectations towards a more stable currency.

Thailand

• Election Date: 24 March 2019
• Market Expectations:
  • Probability of THB Appreciation: 53.8% (0.5% movement)
  • Probability of THB Depreciation: 46.2% (0.6% movement)
• Market Outlook:
  • The market is pricing in a minor FX change, with both appreciation and depreciation probabilities near 50%.
  • The market may be underestimating the risks of unexpected political outcomes, as seen in similar elections in 2018.
  • The likelihood of the election proceeding on 24 March is high due to the constitutional deadline.
• Implied Volatility:
  • The volatility curve shows a balanced view of both appreciation and depreciation.
  • The market remains cautious due to the history of election postponements and uncertainty around the date.

Indonesia

• Election Date: 17 April 2019
• Market Expectations:
  • Probability of IDR Appreciation: 31.7% (0.8% movement)
  • Probability of IDR Depreciation: 68.3% (0.4% movement)
• Market Outlook:
  • The market is not fully pricing in the election, with only a small premium embedded.
  • The central bank may intervene to stabilize the IDR if depreciation occurs.
  • The current surveys suggest a high likelihood of incumbent President Jokowi's re-election.
• Implied Volatility:
  • FX options in Indonesia are less liquid compared to NDF markets, which may affect the accuracy of market expectations.
  • The forward jump PDF shows a higher probability of depreciation, but this may not be reliable due to market illiquidity.

Methodology

• A special events model is used, which applies FX volatility smile data to estimate the implied probability of currency movements.
• The model uses a mixture of two log-normal distributions to represent the probability density function (PDF) of appreciation and depreciation scenarios.
• The analysis is based on implied volatility data from one business day before and after the election.

Strategic Implications

• Turkey: Maintain a tactical long TRY position due to the stable currency outlook and strong carry.
• Thailand: Consider buying USD/THB topside options to hedge against potential risks, while remaining constructive on the THB in the medium term.
• Indonesia: Due to market illiquidity, local bonds are preferred over options for expressing a bullish view. A short TWDIDR NDF trade was closed with a 3.6% profit.

Additional Notes

• The document highlights that markets often underestimate political risks.
• FX volatility is used as a proxy for market sentiment and expectations.
• Options markets in Indonesia are not as liquid as NDF markets, making them less reliable for accurate probability estimation.
• The analysis is non-independent research and intended for Relevant Persons as defined under MiFID II and other regulations.
• Performance data is based on back-testing and is not a guarantee of future results.
• Conflicts of interest may exist due to interactions with sales and trading teams, and the document may contain marketing communications.

Conclusion

The document provides insights into market expectations for the outcomes of elections in Turkey, Indonesia, and Thailand, using FX volatility data. It emphasizes the importance of considering both the probabilities and the uncertainties associated with these events, and offers strategic recommendations for investors based on the analysis.