20140808-法国巴黎银行-EM_Strategy_Plus_40页_1mb

EM Strategy Plus Summary

Core Content

This document provides a weekly analysis of Emerging Market (EM) strategies, focusing on FX, interest rates, and credit instruments across Asia, CEEMEA, and Latam. It outlines the current market environment, key views, asset allocation recommendations, and trade reviews.

Key Views and Asset Allocation

Asia FX: Medium-term Rewards as Risk Assets Unravel

• A technical correction is underway in Asian risk assets, and the Asian risk index indicates that this correction may continue.
• Some selective opportunities are emerging with reasonable risk-reward ratios on a medium-term basis.
• The sell-off in Asian currencies is not as severe as the 2013 'taper tantrum' but is driven by a normalization of risk premia and geopolitical factors.
• USD/Asia is expected to trade higher in the near term.
• The document recommends maintaining a long USD/KRW position and is cautious about the potential for further liquidation of short-dated MYR and THB instruments.

CEEMEA: A Different Kind of Sell-off

• The current sell-off in CEEMEA is different from previous ones, as developed market (DM) equities are more sensitive to DM interest rates.
• DM rates are acting as automatic stabilisers, which may benefit EM fixed income.
• The document recommends taking profit on the 1y5y TRY ccy flattener and initiating low-risk carry trades in Hungary (HUF 3x6 FRA) and Poland (POLGB 07/19 5y benchmark).
• The focus is on CPI inflation and GDP releases, as well as the Turkish presidential election.
• Russia remains a wild card due to the ongoing conflict, but its impact is expected to diminish as risk premiums increase and funding becomes cheaper.

Latam: Trade Ideas and Market Dynamics

• The sell-off in Latam is influenced by the flattening of the US curve and the impact on local instruments.
• The document recommends receivers in Brazil and a long position in the 1y BEI (Brazil DI Apr'15 vs NTN-B May'15).
• In Mexico, the CPI inflation has surprised to the upside, leading to a flattening of the TIIE curve and a long position in 2s5s TIIE.
• In Chile, the market is pricing in further rate cuts, and the steepening position on 1s5s CLPxCAM is performing well.
• In South Africa, the document recommends a long USDZAR 3m call spread and a 2s5s IRS steepener.
• In Turkey, the document took profit on the 1y5y ccy flattener and recommends receiving Jan'16 PRExDI.
• In Brazil, the document recommends buying synthetic 2y BEI (DI Apr'15 vs NTN-B May'15) and taking profit on the 1y5y flattener.

New Recommendations

Trade Review

FX

• Sell 1m USDINR NDF (stopped out, 7 August): P/L -1.05% (-105 kUSD)
• Buy 1m USDKRW NDF: P/L +0.78% (78 kUSD)
• Sell EURMXN: P/L -0.19% (-10 kUSD)
• Sell 3m USDCNH DF (take profit, 7 August): P/L +0.80% (80 kUSD)
• Sell 3m NDF USDBRL (trailing stop reached on Aug 7th): P/L 0.00% (0 kUSD)
• Sell TRYBRL: P/L -0.12% (-12 kUSD)
• Sell USDCLP (stopped out on Aug 5th): P/L -1.40% (-70 kUSD)

Interest Rates

• Long Soberanos 2017: P/L -3 bp (-15 kUSD)
• Receive 9m IBR Swap: P/L -10 bp (-50 kUSD)
• 1s5s CLPxCAM Steepener: P/L +9 bp (45 kUSD)
• 2s5s TIIE Flattener: P/L -8 bp (-40 kUSD)
• Buy Synthetic 1y Brazil BEI: P/L -4 bp (-20 kUSD)
• Buy Synthetic 2y Mexico BEI: P/L +8 bp (40 kUSD)
• Steepener BRL DI Jan'16/Jan'17: P/L +7 bp (66 kUSD)
• 2s5s ZAR IRS Steepener: P/L +3 bp (15 kUSD)
• HUF 9x12 vs 21x24 FRA Steepener: P/L +8 bp (40 kUSD)

Credit

• Buy Argentina disco USD (Local law) bonds 2033: P/L -85 bp (-212 kUSD)
• Buy Argentina disco USD (NY law) bonds 2033: P/L -51 bp (-76 kUSD)

Options

• Buy 2m USDINR DNT 58.8 vs 61.80 (spot ref: 60.15): P/L not specified
• Buy 6m6m SGD FVA: P/L not specified
• Buy 2m USDIDR ATMF put: P/L not specified
• Buy 3m USDTRY 2.20/2.35 RKO: P/L not specified
• Buy 2m USDZAR 10.65/11 call spread (spot ref 10.41): P/L not specified
• Sell 30-Apr 2015 USD/CNH call with strike 6.90: P/L not specified
• Buy 6m USDBRL 2.65 European digital call (spot ref 2.39, expired): P/L -270 kUSD

Summary of Key Views

• The global EM default rate has increased to 0.82% due to Argentina's default.
• The speculative grade default rate is forecasted to end 2014 at 1.41%, which is 1.09pp lower than the forecasted US HY default level.
• The document suggests that the sell-off in EM currencies is a technical correction rather than a fundamental shift.
• US rates are acting as an automatic stabiliser for EM currencies.
• CEEMEA is more attractive due to falling inflation breakevens and cheaper funding.
• The document is cautious about the impact of the flattening US curve on local markets.
• The market is pricing in only 4bp of OPR hikes at the next two policy meetings.
• The new base rate framework in Malaysia may lead to further re-pricing of risk premiums.

Conclusion

The strategy emphasizes the potential for further normalization of risk premia in EM markets and highlights the importance of monitoring macroeconomic data and central bank decisions. The document recommends selective value-based positions and carry trades, while cautioning against overexposure to volatile currencies and markets.