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CEEMEA Credit Update – 26 March 2018 Summary

Core Content Overview

This document provides a credit market update for the CEEMEA (Central and Eastern European Markets) region as of 26 March 2018, focusing on performance trends, upcoming events, issuance data, and fund flows. It also includes legal disclaimers for various jurisdictions.

Key Market Performance

• EM Credit Performance: EM Credit experienced its second worst weekly performance of the year, driven by deteriorating trade sentiment and increased geopolitical uncertainty due to the reshuffling in the US administration.
• Fed's FOMC Outlook: The Federal Reserve's FOMC message suggested a more hawkish stance on interest rates in the medium term, with a continued data-dependent approach under Chair Powell.
• External Debt vs Local Debt: External debt is becoming more attractive compared to local debt, with yields at 5.1%, a 22bp increase over local debt.
• Spread Movements:
  • EM Cash: External cash spreads widened by 13-18bp, led by single-B credits and new issuers.
  • CDX EM: The spread widened by 27bp.
  • South Africa: SOAF 5Y CDS is under close monitoring for a potential Buy protection strategy.

Upcoming Events

• 26 March:
  • EU/Turkey talks on Syria refugee situation, trade, and visa issues.
  • EU/UK discussions on post-Brexit Irish border issues.
• 27 March:
  • Russian Finance Minister Siluanov's annual speech.
  • Saudi-US CEO Forum.
• 28 March:
  • Results of Egyptian presidential elections.
  • South Africa rate decision (BNP Paribas -25bp).
• 29 March:
  • US Q4 GDP (BNP Paribas: 2.5% vs. consensus 2.7% and prior 2.5%).
• 30 March:
  • Turkey Q4 GDP (BNP Paribas: 6.7% vs. prior 11.1%).

Issuance and Supply

• Weekly Issuance: Global issuance dropped to this year's lows, with $7bn priced globally and $2bn from CEEMEA.
• Supply Trends: The low issuance is attributed to ongoing price action and the upcoming Easter holiday, which is expected to keep the pipeline and new issuance subdued for the next couple of weeks.

Fund Flows

• EPFR Data: Total inflow into EM FI funds was $0.5bn, including a $0.3bn outflow from hard currency funds.
• Investor Sentiment: The mixed fund flow indicates cautious investor behavior amid market uncertainty.

Next Issue

• The next issue of the CEEMEA Credit Update is scheduled for 16 April.

Legal Disclaimers

The document is a marketing communication and not a research report. It is intended for Professional Clients and Eligible Counterparties as defined under MiFID II. Views expressed are not necessarily those of the BNPP Research Department and may differ. The document does not constitute investment, financial, legal, or tax advice. It is not a prospectus and does not form the basis of any investment decision.

Jurisdictional Notes

• UK: Document is produced by BNP Paribas London Branch, authorized and supervised by ECB, ACPR, and FCA.
• France: Produced by BNPP SA and BNPP Arbitrage, supervised by ECB and ACPR.
• Germany: Distributed by BNPP S.A. Niederlassung Deutschland, supervised by ECB, ACPR, and BaFin.
• Belgium: BNPP Fortis SA/NV is supervised by ECB, ACPR, and FSMA.
• Ireland: Distributed by BNPP S.A., Dublin Branch, supervised by ECB and ACPR.
• Italy: Distributed by BNPP Succursale Italia, supervised by ECB, ACPR, and Bank of Italy.
• Netherlands: Distributed by BNPP Fortis SA/NV, Netherlands Branch, supervised by ECB, ACPR, and AFM.
• Portugal: Distributed by BNPP - Sucursal em Portugal, supervised by ECB, ACPR, and Banco de Portugal.
• Spain: Distributed by BNPP S.A., S.E., supervised by ECB and ACPR.
• Switzerland: Intended for Qualified Investors as defined by CISA.
• Canada: Not a prospectus and not intended for public offering; only for institutional investors.
• United States: Distributed only to institutional investors; BNPPSC is responsible for content.
• Brazil: For information purposes only, not an offer or request for investment.
• Turkey: Distributed by TEB Investment and TEB, not an investment advisory service.
• Israel: No licence to offer investment advice.
• Bahrain: Licensed and regulated by the Central Bank of Bahrain.
• Australia: Directed to wholesale clients only, not retail.
• India: For professional and institutional investors only, regulated by RBI and SEBI.
• Indonesia: Distributed by PT Bank BNPP Indonesia, regulated by Bank of Indonesia.
• Japan: For Japanese-based institutional and professional investors only, not for retail.

Summary of Key Points

• Market Performance: EM Credit underperformed significantly due to trade tensions and geopolitical concerns. External debt yields are more attractive than local debt.
• Issuance Trends: Global issuance reached this year's lowest levels, with CEEMEA contributing $2bn.
• Fund Flows: Mixed inflows and outflows in EM FI funds, with a notable outflow from hard currency funds.
• Upcoming Events: Several key economic and political events are expected to impact market sentiment in the coming days.
• Legal Disclaimer: The document is not a research report and does not constitute investment advice. It is intended for professional and institutional investors only.