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EM Strategy Summary - 26 February 2018

Core Content Overview

This document provides an overview of emerging markets (EM) strategy and market outlook for the week of 26 February 2018, focusing on key events, economic data, and currency movements across different regions. It includes insights from BNP Paribas analysts on credit ratings, policy expectations, and investment recommendations.

Key Market Updates

Credit Rating Changes

• Russia: S&P upgraded Russia's credit rating to BBB- (stable outlook) from BB+ (positive outlook), making its external debt eligible for inclusion in IG-only eurobond indices.
• Fitch: Affirmed its BBB- (positive outlook) rating on Russian external debt, reinforcing the upgrade's significance.
• Implication: The upgrade is expected to attract more institutional inflows to Russian assets, with the USDRUB falling below 56.

Policy Expectations

• No rate changes are expected in major EM central bank meetings this week, including South Korea, Hungary, and Argentina.
• Hungary: The MNB is expected to maintain its base rate at 0.9%. The bank continues its dovish stance to prevent HUF appreciation.
• Argentina: The BCRA is expected to keep rates on hold, with no signs of inflation moderation to meet the revised 15% target.

Currency Outlook

• Asian currencies are likely to weaken over the next 1-3 months due to rising USD rates and market volatility, but may strengthen later in the year due to robust growth fundamentals and balance of payments.
• India: High NDF volumes suggest a potential new resistance level at 65.00, but fundamentals remain weak. USDINR is expected to trade in a range of 65–66.
• Thailand: Current account balance figures are expected to be released, with a focus on whether service trade balances can offset recent customs trade deficits.
• China: The PBoC is unlikely to match Fed rate hikes, and the scope for further CNY rate outperformance is limited. The document recommends taking profit on the 5Y CNY NDIRS received position.
• Brazil: Real GDP growth is expected to be +0.3% q/q s.a. and +2.5% y/y, indicating a potential recovery path. For 2018, the forecast is +3.0% y/y GDP growth.

Key Economic Data Releases

• South Africa: January PPI and trade balance data on Wednesday, with a cabinet reshuffle expected soon.
• Czech Republic, Poland, Hungary, Russia: Manufacturing PMIs on Thursday.
• Malaysia and Indonesia: CPI data on Wednesday and Thursday, respectively.
• India: GDP figures on Wednesday.
• Taiwan: Market closed on Wednesday due to Peace Day.
• Korea and Thailand: Markets closed on Thursday.
• India: Markets closed on Friday.

Investment Recommendations

• Asia: Caution is advised due to the potential for volatility and weak fundamentals.
• Argentina: The document recommends buying protection in Argentina 5Y CDS against a basket of Latam 5Y CDS (Brazil, Colombia, Mexico) due to the narrow margin for setbacks.
• China: Profit-taking on the 5Y CNY NDIRS received position is advised.

Contacts

Legal and Disclaimer Notes

• This document is non-independent research and may be subject to conflicts of interest.
• It is a marketing communication and not investment research.
• It does not constitute an offer to sell or issue any financial instrument.
• The information may not be accurate or complete and is subject to change.
• No liability is accepted for any losses arising from reliance on this document.
• Simulated performance is provided for illustrative purposes only.
• The document may contain restricted securities, accessible only to Qualified Institutional Buyers (QIBs) or non-US persons under Regulation S.

Additional Disclosures

• Options and ETFs: These instruments are complex and may involve high risk. Investors should consult independent advisors.
• U.S. Disclosures: The document may be distributed only to institutional investors and is subject to U.S. securities laws.
• UK and France: The document is produced and distributed by BNP Paribas entities, subject to relevant regulatory approvals.

Online Resources

• BNP Paribas Global Markets Website: www.globalmarkets.bnpparibas.com
• Bloomberg Research:
  • Fixed Income Research: BPFR
  • G10 Interest Rate Research: BPBS
  • Emerging Markets Research: BPFR
  • Market Economics: BPEC