德银-新兴市场-宏观策略-新兴市场宏观与策略聚焦-2019.9.27-42页_2mb

Summary of EM Macro and Strategy Focus - 27 September 2019

Core Content

This document outlines the current macroeconomic and market outlook for Emerging Markets (EM), focusing on FX, rates, and credit strategies. It highlights key central bank actions, inflation trends, and market dynamics across Asia, CEEMEA, and Latin America (LatAm). The analysis is structured to provide actionable trade recommendations based on economic data and technical indicators.

Main Views and Key Information

FX Outlook

• Asia: The RBI is expected to cut rates by 25bps, with inflation data unlikely to change the forecast of further rate cuts.
• CEEMEA:
  • Turkey: Inflation is expected to remain near the 2.0% target in September, with macro conditions improving and sanction risk lowering due to US political developments.
  • Poland: Inflation is expected to remain constant, and we recommend buying PLN vs HUF based on relative monetary policy dynamics.
  • Russia: The NBP is expected to maintain rates, and we recommend staying structurally bullish on ILS due to BoP support.
  • Chile: A seasonal drop in unemployment to 7% is noted, but industrial production and IMACEC remain weak.
  • Colombia: The central bank is expected to maintain a neutral stance, with inflation still high.
• LatAm:
  • Mexico: Banxico cut rates by 25bps to 7.75%, and we recommend staying overweight in the long-end of the curve.
  • Brazil: We remain received on BRL, with the currency facing headwinds from low growth and outflows.
  • Argentina: Industrial production is expected to decline at nearly -2.9% y/y in August due to political noise.
  • Peru: Inflation is expected to remain near the 2.0% target, with FX depreciation pressures starting to materialize.

Rates Strategy

• EMEA:
  • Poland: Pay 10Y IRS as we expect a flattening of the curve.
  • Russia: Receive 1Y IRS (vs Mosprime) and recommend long 47s vs 5Y CDS RV.
  • Turkey: Receive 5Y XCCY, with the 10Y sector offering the best value.
• LatAm:
  • Brazil: Remain received on BRL, with the 10Y sector offering good value.
  • Mexico: Long Mbonos 29s, with the 5Y XCCY trade showing potential.
  • Colombia: Long COLTES 32s vs Pay 10y IBR Swap, with a neutral stance on the 28s.

Credit Strategy

• EM Sovereign Credit:
  • A surge in supply (USD23bn) has caused market stress, with EM sovereign credit benchmark spreads widening by 12bp.
  • South Africa's recent bond sales have led to underperformance and pricing distortions, but we expect this to be priced out.
  • We recommend entering curve flatteners (28s vs 26s) and switching from 46s to 49s.
  • Turkey is now viewed more constructively, with the 10Y sector offering attractive value.
• LatAm Sovereign Credit:
  • Argentina: Switch from 21s to 2117s.
  • Ecuador: Switch from 24s to 26s.
  • Mexico: Long 29s vs 5Y CDS, with a shift from 40s to 46s.

Key Market Dynamics

• EM Currencies: FX drifts are expected to continue with little central bank resistance. EM curves are likely to stay flat for longer.
• Credit Markets: Resilient to uncertainty, with continued inflows and lighter positioning. South Africa's recent issues have caused distortions, but we expect these to be resolved.
• Inflation Trends: Inflation remains a key factor in EM rate decisions, with some countries showing signs of stabilization or decline.
• Political Factors: US political developments have a potential positive impact on Turkey and Russia, reducing sanction risks.

Trade Recommendations

• FX Trades:
  • Short USD/ILS
  • Long PLN/HUF
  • Short USD/RUB
  • Buy BRL/ZAR
  • Sell PEN/CLP
• Rates Trades:
  • Pay 10Y IRS in Poland
  • Receive 1Y IRS in Russia
  • Receive 5Y XCCY in Turkey
  • Long USD/BRL in Brazil
  • Long Mbonos 29s in Mexico
• Credit Trades:
  • Enter 28s vs 26s in South Africa
  • Switch from 46s to 49s in South Africa
  • Long 47s vs 5Y CDS in Turkey
  • Switch from 21s to 2117s in Argentina
  • Switch from 24s to 26s in Ecuador
  • Long 29s vs 5Y CDS in Mexico

Figures and Data

• Figure 1: Best & Worst FX Performance
• Figure 2: Best & Worst Rates Performance
• Figure 3: Sovereign issuances in September
• Figure 4: EM country subindex spread performance since last Friday
• Figure 5: Mutual fund beta fall below 1.0
• Figure 6: Inflows resumed and continued
• Figure 7: Country positioning - end of August vs. end of July
• Figure 8: South Africa's 5s10s has steepened significantly
• Figure 9: South Africa: Spread change since Friday close
• Figure 10: South Africa: PEC spread vs. duration
• Figure 11: SOAF 28s sharply underperformed 26s
• Figure 12: Turkey: PEC spread vs. duration; 29s appear cheap at the 10Y sector
• Figure 13: LatAm rates value
• Figure 14: Priced TPM rates vs. scenarios

Conclusion

The document emphasizes a cautious but constructive outlook for EM markets, with a focus on continued monetary easing, weak growth, and FX dynamics. Strategic recommendations include favoring rates over FX in certain markets, entering credit trades based on valuation and spread differentials, and maintaining a neutral or overweight stance depending on the country's economic performance and macroeconomic conditions.