20161125-法国巴黎银行-EM_Strategy_Plus_22页_2mb

EM Strategy Summary - 25 November 2016

Core Content

This document provides a detailed analysis and strategy recommendations for Emerging Markets (EM) in the context of global FX and interest rate movements, focusing on the impact of US monetary policy, EM debt positions, and currency performance.

Main Concerns

• Outstanding FX-denominated debt: The main concern is the accumulated stock of FX-denominated debt in EM countries, which could be vulnerable to currency depreciation.
• Current account improvements: EMs' current account position has improved since the tapering of US quantitative easing.
• Interest rate dynamics: The document emphasizes the importance of real interest rates in assessing EM credit risk and currency performance.

Key Recommendations

• Receive 1y1y in Mexico and South Korea: These positions are recommended due to attractive real rates.
• Go long Turkey's CDS: Continued recommendation for credit protection in Turkey.
• Close USDTRY call spread: The strategy was closed for a profit of 1.96%.
• Buy Jun19 UDIBonus: A new recommendation for real rates in Brazil.
• Close long USDKRW position: The long USDKRW position was closed at 1,177.5, with a profit of 0.56%.
• Sell SGD vs INR: The recommendation to sell SGD against INR was closed for a small loss.

Regional Highlights

Asia

• India: The INR has lost its status as a high yielder due to a sharp decline in market interest rates and FX implied yields. The carry trade is under pressure, and the recommendation to sell SGD vs INR was closed.
• South Korea: A long USDKRW position was closed at 1,177.5, with a profit of 0.56%. The strategy was initiated at 1,115 in October and re-entered in November due to fresh momentum from the US election.

CEEMEA

• Turkey: The CBRT surprised the market with a rate hike, but the impact is limited due to the small size. The document suggests that the central bank may use other tools to tighten liquidity conditions or increase FX swap rates.
• South Africa: S&P is reviewing South Africa's rating, which could result in a downgrade. The current rating is BBB- with a Negative outlook.
• Poland: CPI inflation is expected to rise into positive territory, and the manufacturing PMI is anticipated to increase.
• Hungary: The manufacturing PMI is expected to fall, and employment and producer price inflation data will be released.
• Czech Republic: The manufacturing PMI is expected to increase slightly.

Latam

• Brazil: Non-resident participation in public debt has decreased slightly, with non-residents holding USD 135.7bn. The DI curve is expected to continue to be a focus.
• Mexico: The central bank may have a more hawkish stance, with a potential rate hike in December. The 1y1y TIE receiver position was extended.

Key Information

• FX and Credit Strategy: The document outlines various FX and credit strategies, including NDF trades, CDS, and options.
• Performance Metrics: The summary includes the performance of various trades, with a total profit of 807k USD.
• Market Conditions: The document highlights the impact of US rate hikes on EM markets, particularly in terms of credit risk and FX volatility.
• Interest Rate Expectations: The US is expected to hike rates multiple times in 2017 and 2018, which could add pressure to EM markets through the credit channel.
• EM FX Volatility: FX volatility has increased following the US election, impacting carry trade strategies.

Summary Table

Conclusion

The document underscores the importance of managing FX and credit exposure in EM, especially in the context of US monetary policy and the impact on EM debt and currency positions. It recommends a cautious approach to carry trades and highlights the need for continued monitoring of EM credit risk and FX volatility.