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EM STRATEGY DAILY - 20 April 2018 Summary

Core Content

This document is a daily strategy update from BNP Paribas, focusing on Emerging Markets (EM) developments across CEEMEA, Latam, and Asia. It provides market insights, ratings reviews, and investment opportunities, along with legal disclosures for compliance purposes.

Key Market Highlights

CEEMEA Region

• Turkey:

  • Local FX deposits increased by USD 1 billion in the week ending 13 April, with USDTRY reaching 4.19.
  • The Central Bank of the Republic of Turkey (CBRT) reported a rise in 24-month inflation expectations to 8.63% from 8.31% in March.
  • This suggests a higher probability of a 50bp interest rate hike on 25 April.
  • The 1m fwd 3m × 9m TRY CCY flattener was entered at 95bp (target 50bp), expired at 55bp, and profits of 40bp were taken.

• Ratings Review:

  • Moody's will review the sovereign ratings of Bahrain (currently B1 with a negative outlook) and the Czech Republic (A1 with a stable outlook).
  • S&P will review the Ukraine's rating (currently B- with a stable outlook).

Latam Region

• Brazil:

  • The focus is on mid-month inflation for April.
  • Investors are expected to pay close attention to food and services inflation.
  • The short-end of the Dl curve continues to price in the likelihood of a further rate cut by the Central Bank of Brazil (CCB).

• Mexico:

  • The first of three televised debates ahead of the presidential election is scheduled for Sunday (22 April).
  • Previous debates in Mexico have had limited impact, but this format and topic selection may change that.

Asia Region

• India:

  • The minutes from the April monetary policy meeting were more hawkish than expected.
  • Deputy Governor Viral suggested policy changes at the June meeting.
  • The 5Y NDOIS has surged 10 bps to 6.80% following the news.

• Indonesia:

  • Bank Indonesia kept policy rates on hold, in line with expectations.

Main Points and Views

• The Turkish lira is expected to continue its recovery, prompting FX buying by locals.
• The inflation outlook in Brazil remains downward, which supports the expectation of rate cuts.
• The Mexican presidential debates could have a different impact this time due to new formats and topics.
• The India 5Y NDOIS is a favorable investment given the recent hawkish tone in monetary policy.
• Credit spreads have widened in Asian markets, and equity and FX markets are moderately lower.

Contacts

Legal and Compliance Information

• This document is non-independent research and is intended for marketing purposes.
• It does not constitute investment research under MiFID II and is not for retail investors.
• It may include Research content under MiFID II unbundling rules, available only to firms that have signed up for BNP Paribas Global Markets Research packages or are out of scope.
• No fiduciary duty is assumed, and no investment advice is provided.
• Performance data may be based on back-testing and is not indicative of future results.
• Options and ETFs discussed are complex instruments and not suitable for all investors.
• Restricted securities may be discussed, which are only available to Qualified Institutional Buyers or non-US persons.
• The document is for internal use and may not be distributed without prior written consent.

Disclaimer

• This document is for informational purposes only and not intended as an offer to sell or solicitation of an offer to buy.
• No guarantee is made regarding the accuracy or completeness of the information.
• Indicative prices may vary and are not actual transaction terms.
• Confidentiality is required; the document may not be copied, reproduced, or distributed without permission.
• BNP Paribas may have conflicts of interest and may engage in transactions inconsistent with the views expressed.