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EM Strategy Daily Summary - 08 November 2017

Core Content Overview

This document is a daily strategy report from BNP Paribas, covering key developments in Emerging Markets (EM) and Latin America (Latam) for 08 November 2017. It includes insights from various regional strategy teams, market analysis, and legal disclaimers.

Key Market Updates

Central Bank Policy

• Poland: The Polish central bank is not expected to change policy today. The inflation outlook remains positive due to a high base from last year, and rate hikes are not anticipated before H2 2018.
• Romania: The Romanian central bank kept interest rates at 1.75%, despite an estimated economic growth of 6.1% for the year.
• Argentina: The central bank raised policy rates by 100bps to 28.75%, the second increase in two months. This is due to persistently high inflation (24%) against a target of 12-17%.

Economic Indicators

• Turkey: Industrial production surged, confirming expectations of double-digit GDP growth in Q3 and a full-year growth rate of 6.7%. This growth is a key driver of inflation above 12% and a current account deficit expected to reach 5.1% of GDP by October.
• China: Trade data showed slightly lower than expected results, but there is a trend of sustained trade growth and an upturn in the global business cycle. A 20-30% drop in imports of iron ore and oil in October compared to September was noted, but this is expected to be temporary as quotas for oil are set to increase by over 55% next year. The drop in oil imports led to a 0.5% decline in oil spot prices.

Regional Market Conditions

EM and Latam Asset Performance

• EM risk assets have been under pressure due to excessive risk appetite, seasonally slower portfolio inflows into EM in Q4, positive US economic surprises, and a new leg of USD appreciation.
• The team highlights the middle of a sell-off in EM and Latam, with a summary of current recommendations.

Other Relevant Information

Contacts

• Wike Groenenberg: Head of Emerging Markets Research, CEEMEA & APAC, London
• Piotr Chwieczak: FX & IR CEEMEA Strategist, London
• Sai Ulluri: FX & IR CEEMEA Strategist, London
• H. Erkin Isik, CFA: FX&IR CEEMEA Strategy, Istanbul
• Gustavo Mendonca: FX&IR Latam Strategist, Sao Paulo
• Gabriel Gersztein: Head FX&IR Latam Strategy, Sao Paulo
• Samuel Castro: FX&IR Latam Strategist, Sao Paulo
• Dawn Kwa: FX & IR Asia Strategy, Singapore
• Mirza Baig: Head of FX & IR Asia Strategy, Singapore
• Altaz Daga: AU/NZ IR Strategist, Singapore
• Kun Shan: China Strategist, Shanghai
• Tianhe Ji: China Strategist, Beijing

Legal Disclaimer

• The document is non-independent research and is intended as a marketing communication.
• It does not constitute investment research for MiFID purposes and is not subject to independence requirements.
• No liability is accepted for any loss arising from reliance on the document.
• Confidentiality is emphasized; the document may not be distributed without prior written consent.
• BNP Paribas may have conflicts of interest due to its role in investment banking, underwriting, and advisory services.

Summary of Key Views

EM and Latam Strategy Highlights

• Turkey: Strong GDP growth and inflationary pressures continue, with leading indicators suggesting a slowdown to more sustainable levels.
• Poland: No rate hike expected in the short term; EURPLN remains range-bound.
• Argentina: Inflation remains high, and the central bank is likely to keep rates unchanged until Q2 2018.
• Asia: Asian markets are weak, with FX and equities under pressure. However, the global business cycle is improving, which may support currency gains in the coming year.

Additional Notes

• Performance data may include back-testing and is not guaranteed to reflect future results.
• ETFs and convertible securities may involve currency, geopolitical, credit, and interest rate risks.
• Options are complex instruments with high risk, suitable only for sophisticated investors.
• The document is not a prospectus, advertisement, or public offering in the US, Canada, or EU countries.
• Confidentiality is required; the document may not be shared with unauthorized parties.

Conclusion

The report highlights positive economic data from Turkey and China, while noting weakness in EM markets due to USD appreciation and market sentiment. It outlines policy expectations and market outlooks for key EM and Latam countries, emphasizing the need for caution and independent evaluation.