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EM Strategy Summary - 06 November 2017

Core Content

This document outlines the current state of Emerging Markets (EM) strategy and provides market insights, recommendations, and updates on key economic indicators and central bank decisions across various regions. It is authored by BNP Paribas strategy teams and includes contact information for relevant analysts.

Main Recommendations

• Portfolio Duration: Investors are advised to shorten the duration of their portfolios in response to a more challenging EM environment.
• Exposure Reduction: Exposure to EM countries with weaker fundamentals and higher vulnerability to negative headlines should be reduced.
• Focus on Vulnerability: A scorecard is presented to evaluate how vulnerable different EM countries are in the context of tighter global conditions.
• CEEMEA Countries: CEEMEA countries outside the CEE region are identified as the most at risk in the EM world.

Key Market Updates

Saudi Arabia

• Corruption Allegations: King Salman called for several top officials and members of the royal family to be removed due to corruption allegations.
• Impact on Markets: The news led to a rise in oil prices and local stock markets, with expectations of economic reforms.
• Stock Impact: Stocks with high ownership by the detained individuals, such as Kingdom Holding, were significantly affected.

Turkey

• CBRT Measures: The Central Bank of the Republic of Turkey (CBRT) took measures to ease weakening pressures on the TRY currency.
• Loan Payments: CBRT will accept TRY payments for FX loans at fixed rates of 3.70 USDTRY and 4.30 EURTRY until 1 February 2018.
• FX Reserves: This move aims to increase FX reserves and provide short-term relief to the TRY.
• Carry Trade Size: The size of international carry trades is estimated at USD 22bn, with additional USD 14bn in bond and equity holdings.
• Inflation Forecast: The October inflation data surprised to the upside, leading to an updated CPI inflation forecast for end-2017 at 11.2% y/y, up from 9.8% previously. End-2018 forecast remains at 8.8%.
• Visa Crisis: PM Yildirim is expected to visit the US to discuss the visa crisis.

Poland

• Monetary Policy: The monetary policy committee is unlikely to hike rates on 8 November.
• Zloty Performance: The zloty needs to weaken significantly for policy tightening to be considered.

Mexico

• Banxico Meeting: The central bank is expected to keep policy rates unchanged until the end of the year.
• FX Hedging: The existing FX hedging programme is believed to curb undesired FX weakness.
• Interest Rate Expectations: The IRS curve now implies a probability of rate hikes in the coming months, with a 25bp premium until mid-2018.
• CPI Data: The CPI release on Thursday (9 November) will be important for Banxico's inflation assessment.

Brazil

• CPI Release: The October CPI is expected to show continued low inflation, allowing the Central Bank to continue easing the Selic rate.

Asia

• Thailand: The Bank of Thailand (BoT) is expected to maintain a dovish stance, potentially leading to rate rallies after the policy decision on 8 November.
• Malaysia and Philippines: BNM and BSP are expected to sound more hawkish, though the BNM may delay a rate hike due to upcoming elections.
• Philippines CPI: The Philippines' CPI data on 7 November will be important ahead of the BSP's policy decision on 9 November.
• China and Taiwan: Trade data will be released on 7 and 8 November respectively, with expectations of weaker-than-anticipated Chinese exports.

Key Contacts

Legal Disclaimer

• This document is non-independent research and may be subject to conflicts of interest.
• It is a marketing communication and not investment research.
• No liability is accepted for any use of the information or opinions contained in this document.
• BNP Paribas may have financial interests in the securities mentioned and may engage in transactions inconsistent with the views expressed.
• Performance data may be based on back-testing and simulations, which do not reflect actual market conditions.
• The document is not a prospectus, advertisement, or public offering.
• It is intended for professional clients and eligible counterparties only.