20170127-法国巴黎银行-EM_STRATEGY_PLUS_33页_4mb

EM Strategy Summary - 27 January 2017

Core Content

This document is a weekly report from BNP Paribas on Emerging Markets (EM) strategy and credit performance, published on 27 January 2017. It outlines the team's views on EM credit, FX positioning, and market risks, along with specific trade recommendations and performance updates.

Main Views and Key Information

1. EM Credit Performance and Caution

• Performance: EM credit had a relatively strong performance in January, with a 1.49% year-to-date total return on the EMBI.
• Valuation Concerns: Despite the strong performance, valuations are tight, leading the team to remain cautious about potential medium-term risks.
• Trade Retention: The team retains the CDX EM vs CDX IG ratio trade, as they believe EM credit may underperform US credit once a gap risk materializes.

2. ETF Impact on EM Credit

• ETF Concentration: ETFs are a significant technical presence in the EM credit market. The team highlights the importance of understanding ETF holdings and their impact on bond prices.
• Concentration Trends: ETF concentrations in the top holdings have decreased since the US election, though some countries like Pakistan, ACIRC, and CNOOC have seen increased ETF exposure.
• Sensitivity: Certain bonds are more sensitive to ETF flows. These include Latvia '20s, El Salvador '35s and '32s, Kazakhstan '44s, Sri Lanka '26s, and Serbia '20s.

3. FX Positioning and Trade Recommendations

• Asian FX: The short-covering rally in Asian currencies has peaked, with market positioning now neutral. A further appreciation will require a higher bar.
• Trade Updates: The team was stopped out of the recommendation to buy 12m USDTWD and to receive ZAR 5y5y. They recommend going short USDMXN December 2017 forward and long USDARS 2y NDF against short USDARS 1y NDF.
• Performance: Some FX trades have shown positive returns, such as the long USDARS 2y NDF and the long Peru Soberanos 2026 (FX unhedged), while others have resulted in losses, like the buy 12m USDTWD NDF.

4. Market Outlook and Risks

• Potential Gappy Moves: The team suggests that a medium-term gappy move may occur due to a US Treasury spike or EM-specific events, though this is unlikely in the short term.
• Treasury and Carry: EM credit has benefited from the carry trade and tight spreads, but this may not be sustainable in the long term.

5. Options and Credit Positions

• Options: The team has taken positions on options, including buying USDJPY/USDKRW dual digital options and long USDMXN Put and USDBRL Call options.
• Credit: The team has bought Turkey 5y CDS and sold a Latam CDS basket, with some trades resulting in positive performance while others have been stopped out.

Key Trade Table

Total Performance

• Total P/L: +5303 kUSD
• Rates: +3983 kUSD
• FX: +2011 kUSD
• Options: -787 kUSD
• Credit: +97 kUSD

What's Up Next Week?

• Asia: Several markets in Asia will be closed for the Chinese New Year, with China off from Monday to Thursday. South Korea, Taiwan, Hong Kong, Singapore, and Malaysia will have shortened workweeks.
• India: The government will present the budget on Wednesday, 1 February, marking a departure from the traditional 'last day of Feb' event. The 2017 budget will also be the first without the Railway Budget, which will be integrated into the main budget.