20181106-法国巴黎银行-EM_scenario__Harbingers_of_FX_and_rollover_risk_11页_442kb

Summary of "EM scenario: Harbingers of FX and rollover risk" (November 6, 2018)

Core Content

This document is a Focus publication from Banco BNP Paribas Brasil S.A. on global emerging markets (EM), specifically examining FX risk and rollover risk in the context of the market sell-off observed in Q1-Q3 2018. The analysis highlights that while there are certain concerns, the overall EM asset class does not present a systemic risk similar to the 1997-2000 period.

Main Points

• Market Sell-off Context: The sell-off in Q1-Q3 2018 was attributed to FX and rollover risks, but the analysis suggests it was a re-pricing of risk due to US-China trade tensions rather than a structural change in fundamentals.
• Debt Rollover Risk:
  • There is a concentration of debt maturities between 2019 and 2023.
  • Government debt in domestic currency constitutes over 90% of total debt, indicating a manageable risk profile.
  • Corporate debt, which is riskier, accounts for only 33% of total obligations.
  • China is the largest contributor to EM debt, with USD2.0trn or 57.4% of total maturities until 2023.
• FX Risk:
  • FX risk is concentrated in corporate debt (54% of total) rather than government debt (7.4% of total).
  • Investment grade corporates make up 74% of total debt, reducing the overall FX exposure.
  • Argentina has the highest hard currency government debt-to-GDP ratio, while Turkey has the highest corporate debt-to-GDP ratio in hard currency.
• Country-Specific Analysis:
  • Brazil: 90% of BB-rated debt is in domestic currency, significantly lowering its FX risk.
  • Argentina: Faces higher FX vulnerability due to the depreciation of the ARS and a high proportion of hard currency government debt.
  • Turkey: Has significant corporate debt in hard currency, though government debt is not a major concern.
  • Chile: Despite high corporate debt-to-GDP, it maintains an investment grade status, which lowers rollover risk.

Key Information

• The EM asset class is currently less vulnerable than in the 1990s due to a low level of hard currency debt and its concentration in investment-grade entities.
• The report emphasizes that the debt structure is more resilient, with a significant portion of obligations in domestic currency and investment-grade corporates.
• While Argentina and Turkey are highlighted as areas of concern, the overall EM market is not at risk of a crisis similar to the 1997-2000 period.
• The document includes figures and data sources such as BNP Paribas, BIS, Bloomberg LLP, and IIF, providing a comprehensive view of EM debt maturity and currency distribution.

Conclusion

The analysis concludes that the EM asset class is not in a state of systemic crisis, and the current FX and rollover risks are manageable. The debt structure has evolved significantly since the 1990s, with a stronger focus on domestic currency and investment-grade debt, making the market less susceptible to liquidity and rollover shocks.

Recent Focus Publications

1. The impact of external channels on yields
2. Systemic Risk still high, driven by US and the renminbi
3. Introducing a new model for EM portfolio flows; flows to the upside
4. Emerging Markets FX: The RMB is the new US dollar

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