20180810-法国巴黎银行-Argentina__Target_reached_for_long_CDS_position__keep_the_bearish_bias_8页_486kb

LATIN AMERICA STRATEGY Summary

Core Content

This document outlines the strategy and market outlook for Argentina, focusing on the financial and economic conditions that have influenced the decision to maintain a long protection (bearish) position on Argentina's 5-year Credit Default Swap (CDS). The strategy involves locking in partial profits while keeping a reduced position open for potential future movements.

Key Points

• Position Entry: On 06 August 2018, a long protection position on Argentina was initiated.
• Target Achievement: The market has converged to the target level of USD 500k faster than anticipated.
• Position Adjustment: The position has been reduced by 50%, from USD 20mn to USD 10mn.
• Strategy Details:
  • Sell Argentina 5y CDS at 540bp.
  • Allocate USD 10mn to buy protection in a basket of Brazil, Mexico, and Colombia 5y CDS at 241bp, 123bp, and 114bp, respectively.
• Current Profit: As of the time of the report, the strategy has generated a profit of USD 446k.
• Implied Default Probability:
  • 2-year cumulative default probability (CDP) for Argentina: 20% (up from 15%).
  • 5-year CDP for Argentina: 30% (up from 24%).
• Market Outlook: The team believes that the current CDP levels are still not reflective of the challenging financial scenario in 2019, suggesting further potential for CDS widening.

Main Views and Analysis

• Economic and Financial Assessment: No significant changes in the economic, financial, or political outlook for Argentina have occurred since the position was initiated.
• Political and Economic Risks: Argentina continues to face high financial risks, including capital flight, reserve depletion, and a deteriorating economic environment.
• Market Behavior: The sharp sell-off in Argentina's CDS has led to a rapid widening, which the team views as a sign of increased risk perception.
• Strategy Rationale: The decision to reduce the position and take partial profits is based on the expectation of potential stabilization or short-term rebound in the market.

Key Information

• Strategy Team: The strategy is managed by the Latin America Strategy & Commodity Quant Strategy team at BNP Paribas, with key members including:
  • Gabriel Gersztein (Head of GM Latin America Strategy & Commodity Quant Strategy)
  • Samuel Castro, Luca Maia, and Andre Digiacomo (FX & IR Latin America Strategy Commodity Quant Strategy)
• Documents and Charts: The report references charts and other publications that provide further insight into Argentina's financial scenario.
• Legal and Regulatory Information:
  • The document is non-independent research and constitutes a marketing communication.
  • It is intended for professional clients and relevant persons only.
  • BNPP may have conflicts of interest and may engage in transactions inconsistent with the views expressed.
  • The document includes important disclosures related to options, ETFs, and convertible securities, highlighting the risks involved.
  • It is subject to various legal and regulatory requirements in different jurisdictions, including the UK, France, Germany, Belgium, Ireland, Italy, Netherlands, Portugal, Spain, and Switzerland.

Implications

• Risk Management: The team is advised to take partial profits and maintain a reduced position to manage risk while benefiting from the current market conditions.
• Market Participation: BNPP may be involved in market-making, advisory, or other roles related to the financial instruments discussed, which could affect the objectivity of the report.
• Investor Caution: Investors are advised to seek professional advice and understand the risks associated with the transactions, as the document is not intended to be an investment recommendation.

Conclusion

The strategy reflects a bearish outlook on Argentina's financial stability, with the team taking advantage of the current market conditions to secure partial profits. Despite the improved market convergence, the underlying economic and financial challenges remain significant, and the position is being adjusted to reflect this. The report is intended for professional investors and includes important legal and risk disclosures.