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EM STRATEGY DAILY SUMMARY - 29 November 2017

Core Content

This document is a daily strategy update from BNP Paribas, covering key developments in Emerging Markets (EM) across CEEMEA, Latin America (Latam), and Asia. It includes insights on monetary policy, inflation trends, political events, and market reactions, as well as details on relevant contacts and legal disclaimers.

Key Highlights

CEEMEA Region

• Saudi Arabia: Prince Miteb bin Abdullah was released from detention after a USD 1bn settlement against corruption allegations, indicating a faster-than-expected resolution to the probe initiated by Crown Prince Mohammad bin Salman.
• Egypt: The Central Bank has removed FX caps for importers, improving dollar availability under the IMF's extended fund facility program. However, the central bank is expected to continue managing the currency. The team favours local currency and external debt in Egypt due to ongoing reforms.

Latin America (Latam)

• Mexico: The release of Banxico's inflation report will provide more clarity on CPI convergence towards the target in 2018. The team believes there is excessive pricing in the short end of the Mexican IRS curve. Alejandro Diaz de Leon, the new Banxico governor, is expected to support rate cuts in 2018 due to a steep fall in inflation expected in January and February.
• Brazil: The Latam Strategy team has reached its target for the Di Jan-19 recommendation. The market currently prices rate hikes as early as Q2 2018, but the team believes this expectation is overstated. They extend the target to 6.95%. The risk-reward of holding rates at current levels is still considered attractive.

Asia

• South Korea: The Bank of Korea (BoK) is expected to raise interest rates, marking the first rate hike in the region. The market is fully priced for two rate hikes over the next year, but the BoK may adopt a 'dovish hike' approach, emphasizing policy accommodation and using macro-prudential tools instead of further rate hikes. The BoK is likely to be cautious about further currency appreciation.
• China-US Trade Relations: The US Commerce Department has initiated a probe into Chinese aluminium imports, with a decision expected in 2Q 2018. The impact on South Korean assets has been limited, as markets have become desensitized to the narrative.

Other Recent Publications

• Latam FX: Extracting positioning from DTCC data: A report available at www.baogaoba.xyz.

Key Contacts

Legal and Disclaimer Notes

• This document is a marketing communication and not investment research under MiFID.
• It does not constitute an offer to sell or issue any financial instruments.
• BNP Paribas may have conflicts of interest due to its involvement in investment banking, underwriting, or advisory roles related to the entities mentioned.
• Indicative prices are based on internal models and may vary significantly from other sources.
• The performance data included is for illustrative purposes only and may not reflect actual market conditions or future results.
• The document is not a prospectus and should not be relied upon for investment decisions.
• All information is subject to change without notice.
• The document is confidential and may not be distributed without prior written consent.

Conclusion

The report outlines the current market sentiment and strategic views for EM regions, highlighting key policy decisions, inflation trends, and geopolitical developments. It provides insights into central bank actions, market expectations, and potential shifts in monetary policy. The legal disclaimers emphasize that this is not investment advice and that BNP Paribas may have conflicts of interest in its operations.