20140425-巴黎银行证券-EM_Strategy_Plus_16页_1mb

EM Strategy Plus Summary - 25 April 2014

Core Content Overview

This document outlines the current investment strategy and market outlook for emerging market (EM) currencies, local debt, and credit instruments, with a focus on pair-trading opportunities and convergence trends. It includes a detailed analysis of currency clusters, asset allocation changes, and trade recommendations based on macroeconomic and market fundamentals.

Key Views and Asset Allocation

• Brazil: Structurally bearish on the BRL, but neutral in the short term. The local USD curve's front end is too low, while the back end is sensitive to UST 10y yield changes. We recommend trading the flatness of the belly and maintaining a structural steepening view.
• Hungary: Slightly overweight due to potential rate cuts from the NBH, which should benefit short-dated local rates. Despite the negative impact on the HUF, the changes are positive for short-end rates and debt.
• Indonesia: Moved to a small overweight due to strong onshore investor support and a potential buying opportunity during the current correction. We are bullish on IDR bonds.
• Malaysia: Reduced to modest underweight due to poor balance of payments (BoP) dynamics and the expectation that the MYR will underperform against the THB.
• Thailand: Neutral, but we recommend entering 1s3s THB IRS steepeners at 49bp (ideally on dips to 40bp), targeting 120bp with a stop at 20bp. Carry is minimal at -0.5bp/month.
• Mexico: Positive long-term view, but recent price moves suggest much of the good news is already priced in. We tactically maintain exposure as the MXN is near its fair price.
• Russia: Slightly underweight. The CBR is expected to act to limit depreciation and inflation, and we prefer to position for our bearish view through credit and front-end cross-currency swaps.
• South Africa: Slightly underweight. We recommend switching out of SOAF '41 into ROMANI '44.
• Turkey: Lowered to neutral. The CBRT is expected to maintain a tight monetary policy stance, and we remain short TRYINR.

Trade Review

• Relative-value trades opened:
  • Sell 6m MYRTHB NDF (USD 10m notional), targeting 9.50 with a stop at 10.20.
  • Sell 3m TRYINR NDF (USD 5m notional), targeting 27.00 with a stop at 28.80.
  • Sell 3m BRLIDR NDF (USD 5m notional), targeting 4850 with a stop at 5200.
• Existing positions:
  • Steepener BRL DI Jan-16/Jan-17 (10k USD), P/L +3 bp.
  • Pay cupom cambial April 2015 (10k USD), P/L -22 bp.
  • Flattener CLPxCAM 3y vs 5y (5k USD), P/L +1 bp.
  • Receive belly in BRL DI Jan 15x16x17 fly (10k USD), P/L +1 bp.
  • Buy 5y Russia CDS (10k USD), target extended, stop-loss tightened.
  • Buy USDILS (15k USD), P/L -0.85%.
  • Buy Turkey '41 vs sell 3.2x Turkey '04/18 (10k USD), P/L +12 bp.
  • Sell Russia '43 vs buy 1.8x Russia '23 (10k USD), P/L -10 bp.
  • Switch out of SOAF '41 into ROMANI '44 (10k USD), P/L -2 bp.
  • Switch out of EUR-Turkey '16 into EUR-Turkey '17 (10k USD), P/L +25 bp.
  • Buy SOAF '25 vs SAGB '23 (10k USD), P/L +14 bp.
  • Buy ICELAND '22 (15k USD), P/L +84 bp.

Emerging Market Currency Clusters

• Pair-trading opportunities:
  • BRLZAR and MYRTHB are identified as crosses with little correlation to the broad USD trend, driven by domestic factors.
  • The analysis confirms a bearish view on MYR vs THB.
• Cluster analysis:
  • EM countries are grouped based on macro fundamentals and performance relative to each other.
  • The "typical EM" cluster includes Russia, South Africa, and Brazil, with the latter two having the strongest kinship.
  • The second major cluster includes low or medium yielding markets with distinct sub-clusters:
    • Malaysia and Thailand: middle income, export-driven, and externally geared.
    • Korea and Israel: high GDP per capita, low inflation, and high export share of GDP.
    • Chile, Poland, and Mexico: middle group with balanced fundamentals.
  • Hungary and the Philippines are considered outliers due to unique characteristics.

EM Convergence to Corporate HY: What to Expect

• Yield divergence: Since June 2013, EM yields have diverged from US and global corporate HY.
• Partial convergence: Started in January 2014 due to low yields and muted return expectations from traditional fixed income investments.
• Future outlook: The convergence is expected to stabilize in the coming months, despite short-term movements.
• Risks: EM debt is now more sensitive to US monetary policy normalization, and the growth gap between EM and DM has widened.

Summary of Key Takeaways

• The convergence of EM yields to corporate HY is expected to stabilize.
• EM debt is becoming more sensitive to US monetary policy.
• The growth gap between EM and DM has widened since 2013.
• The main drivers of relative performance are domestic idiosyncratic factors, such as monetary policy and fundamentals.
• BRLZAR and MYRTHB are the most promising pairs for pair-trading, with minimal correlation to the USD trend.

Conclusion

The document provides a comprehensive view of EM markets, highlighting key trades and asset allocation shifts. It emphasizes the importance of domestic factors in relative performance and the potential for convergence with corporate HY in the coming months. The strategy focuses on tactical positioning and risk management based on macroeconomic indicators and market dynamics.