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EM STRATEGY | DAILY - 26 January 2018 Summary

Core Content

This document is a daily report from the Emerging Markets (EM) Strategy team at BNP Paribas, focusing on key developments in FX and IR markets across CEEMEA, Latam, and Asia. It includes market outlooks, trade updates, and legal disclaimers.

Key Market Insights

CEEMEA Region

• Russia: Moody's upgraded the outlook on Russia's sovereign rating to positive from stable. This reflects improved fiscal strength, economic prospects, and policy-making. The team believes that Russia's local currency debt may be eligible for an upgrade to Investment Grade (IG) this year, which would allow it to be included in IG-only sub-indices of the GBI-EM local bond index.
• Czech Republic: The second round of the presidential election is expected to be in focus over the weekend.

Latam Region

• Colombia: The team closed its short USDCOP recommendation with an 8.4% profit. The BEER model suggests that the short-term fair value of USDCOP should be 2,600, but they decided to respect their extended target. Recent peso performance has been driven by USD systemic risk, US interest rates, and terms of trade.

Asia Region

• India: The FY18 budget deficit target of 3.2% is expected to be missed, and the deficit may be rolled out to FY19. The FY19 revenue receipts are expected to benefit from faster economic growth and GST collections, while expenditures will rise to stimulate the economy ahead of the 2019 general elections. The Indian bond market is expected to face headwinds in the near-term due to supply and crowding-out concerns. Yields are attractive on a longer horizon, but the OIS curve suggests the sell-off in rates is not yet over.

FX and IR Strategy Highlights

• Eurozone: The ECB acknowledged that growth had exceeded expectations, but expressed discomfort with the recent euro appreciation. Despite this, EURUSD continued its upward trend, and euro-funded CEE currencies broadly strengthened.
• Trump's Davos Speech: Expected to be a key focus for today, potentially influencing global market sentiment.
• Asian FX Markets: Generally lower overnight but showed gains over the week.

Contacts

Legal Notice

• The document is non-independent research and is intended for Relevant Persons as defined by MiFID II.
• It may contain Research as per MiFID II unbundling rules and is only available to those who have signed up to a BNP Paribas Global Markets Research package or are out of scope of the unbundling rules.
• The document is for information purposes only and does not constitute an offer to sell or a solicitation to buy any financial instrument.
• No guarantee of accuracy or completeness is made, and the information is based on public sources and may be subject to change.
• Confidentiality: The document is provided on a strictly confidential basis and must not be copied or distributed without prior written consent.
• Conflicts of Interest: BNPP may engage in transactions in a manner inconsistent with the views expressed in the document, either for its own account or for clients.

Additional Disclosures

• Options: Complex instruments not suitable for all investors, with high risk. Risk disclosure documents are required for access.
• ETFs: May involve tracking error, currency, and geopolitical risks. BNPP may act as an Authorized Participant, market maker, or advisor, potentially leading to conflicts of interest.
• Securities: Some may not be registered under US securities laws and are considered "restricted securities" under Rule 144A.
• US Distribution: The report may be distributed to US persons by BNPP Securities Corp. or its affiliates, but only to those who qualify as institutional investors or major US institutional investors.

Disclaimer

• Performance Data: Any performance data is based on simulations and not indicative of future results.
• Indicative Prices: These are not actual transaction terms and may vary significantly from other sources.
• No Investment Advice: The document does not provide investment, tax, or legal advice.
• Liability: BNPP disclaims all liability for any loss arising from reliance on the document.

Online Resources

• BNP Paribas Global Fixed Income Website: www.globalmarkets.bnpparibas.com
• BNP Paribas Strategy Website: www.bnpparibas.com/strategy