20140620-巴黎银行证券-EM_Strategy_Plus_19页_1mb

EM Strategy Plus Summary - 20 June 2014

Core Content

This report provides an analysis of emerging market (EM) currency strategies, asset allocations, and trade reviews for the week of 20 June 2014. It highlights the impact of the FOMC meeting on EM markets, evaluates specific currency pairs, and outlines recommended trades based on current economic and political conditions.

Main Views and Asset Allocation

Asia: Is it Safe Now?

• FOMC Impact: The FOMC's dovish stance has improved risk sentiment, but uncertainty over oil prices limits the potential for USD weakness.
• Currency Forecasts:
  • INR: Revised down to 60.0 for Q3 2014, with a core range of 60-62.
  • SGD and PHP: Forecasts revised slightly higher.
• Carry Trade Considerations:
  • NDF curves in Asia are heavily discounted.
  • INR is under pressure from oil prices.
  • MYR is in a congestion zone.
  • CNH is facing month-end pressures.
  • TWD is showing strong equity inflows and may be a better funding currency.
• Trade Adjustments:
  • Closed long MYR/TWD trade.
  • Re-entered short USD/CNH trade.
  • Maintained a core range for KRW at 1010-1030.

CEEMEA FX: Reason to Differentiate

• FOMC Impact: The FOMC has supported EM carry trades, but differentiation is advised.
• Currency Allocations:
  • Turkey: Still underweight, but risks remain skewed.
  • South Africa: Still underweight, but the SARB may underperform in monetary tightening.
  • Poland: Overweight reduced slightly, but local bond curve belly remains attractive.
  • Hungary: Took profit on bearish HUF positions.
  • Russia: Expected to see USD/RUB rise in the medium term.
• Key Trades:
  • Receive USDZAR 3m call spread.
  • Sell TRYBRL.
  • Buy 5y Turkey CDS against Russia.

Latin America (Latam)

• Brazil: Tactical bullish for 3 months, with a focus on BEI (Brazilian inflation-linked bonds).
• Mexico: TIIE curve is steepest, suggesting potential for flattening.
• Chile: Long CLP position remains, with support from the back end of the swap curve.
• Colombia: Closed IBR 18m receiver position due to higher-than-expected inflation.
• Argentina: Likely to face a technical default on 30 June, with limited spill-over to Brazil.

Key Trade Review

Key Recommendations

• Asia: Focus on USD/CNH and KRW, with caution on INR and IDR due to oil price sensitivity.
• CEEMEA: Underweight Turkey and South Africa, overweight Poland and Russia.
• Latam: Long BRL and CLP, with tactical bullish on Brazil for 3 months.
• Credit: Buy 5y Indon CDS, sell 5y Russian CDS against Turkey, and buy 5y Turkey CDS against Russia.
• FX: Maintain a core range for USD/SGD and USD/IDR, watch for volatility in USD/CNH and USD/TRY.

Key Risks and Outlook

• Oil Price Volatility: A key risk for EM currencies, especially INR and IDR.
• US Rate Policy: Continued easing may support EM carry trades but could also lead to a re-pricing of risk.
• Geopolitical Tensions: Impact on currencies like TRY and HUF.
• Monetary Policy Uncertainty: Especially in South Africa and Poland.
• Inflationary Pressures: Expected to rise in Brazil and Mexico due to repressed prices and seasonal effects.

Conclusion

The report highlights the importance of differentiation in EM strategies, given the current low volatility and uncertain macroeconomic outlook. It recommends a cautious approach to carry trades, with a focus on USD/CNH, KRW, and certain EM currencies like BRL and CLP. The asset allocation suggests underweighting Turkey and South Africa, while overweighting Poland and Russia. The overall strategy remains tactical and risk-aware, with a close watch on oil prices, central bank policies, and geopolitical developments.