20170915-法国巴黎银行-EM_STRATEGY_PLUS_25页_2mb

EM STRATEGY | GLOBAL WEEKLY - 15 September 2017

Core Content

This document provides a comprehensive analysis and strategic recommendations for emerging markets (EM) across different regions, including Asia, CEEMEA, and Latin America (Latam). It highlights the favorable global conditions for EM, such as a robust recovery in advanced economies, low inflation, accommodative monetary policies, and a weak US dollar. These factors are expected to support EM currencies, sovereign ratings, and commodity prices in the near term.

Main Themes and Recommendations

China Strategy Insight: Hold FX, Pay Rates

• The Chinese authorities have eased reserve requirements on importers and offshore RMB deposits to counter RMB appreciation.
• USDCNY is expected to remain stable, with a potential retracement to 6.60 being capped.
• Recommendation: Pay 5-year repo NDIRS at current levels around 3.80%, targeting 4.15% with a stop-loss at 3.60%.

South Africa: Where Do We Stand?

• The SARB is expected to cut policy rates by a cumulative 100bp this cycle (from 7% to 6%).
• The MTBPS will be released on 25 October, likely showing a revenue shortfall and a small deficit increase.
• The outcome of the December ANC elections is uncertain, but the anti-Zuma faction is gaining ground.
• South African markets are expected to benefit from the positive global environment for EM.

Brazil Credit Strategy: 180, Bullseye!

• 5Y CDS for Brazil reached 180bp, and the team expects it to compress more slowly.
• Recommendation: Remain positioned in the belly and long end of the DI curve, expecting a downward move in rates to catch up with the recent CDS move.

Colombia: Local Debt and Pension Funds Monitor - August 2017

• Non-residents' share of Colombian public debt remains at 25.7%, equivalent to 46.1% of international reserves.

Peru: NDF Curve is Too Flat; Buy 1m vs 3m USDPEN Pips

• The NDF curve has flattened, with the 1m vs 3m spread trading below the 25th percentile of the past five years.
• Recommendation: Buy 1m vs 3m USDPEN pips, with a PV01 of USD 50mn, entry at 95, target at 190, and stop at 10.

Trade Review

Key Takeaways

• Global Conditions: Advanced economies are showing a robust recovery, characterized by low inflation, abundant liquidity, and limited central bank tightening, which is beneficial for EM.
• USD Weakness: A weaker USD is expected to support EM currencies, sovereign ratings, and commodity prices over the next two years.
• China's FX Policy: The PBoC has eased reserve requirements on forward FX purchases and offshore RMB deposits, signaling a more accommodative stance.
• Strategic Positions: The team recommends paying 5Y CNY NDIRS, buying 1m vs 3m USDPEN pips, and maintaining short USDCNY NDF positions.
• Market Outlook: The upcoming FOMC meeting may reverse dollar weakness, and the release of CPI data in Mexico and Brazil will be key market events.

Next Week Outlook

• FOMC Meeting (20 September): May contribute to a reversal of the current dollar weakness.
• Asia: Central banks in Taiwan, Philippines, and Indonesia will hold meetings, with the Philippine central bank expected to signal a rate hike.
• CEEMEA: SARB is expected to cut rates by 25bp on 21 September. In CEE, the focus is on the Hungarian central bank meeting, with expectations of no additional easing.
• Latam: Mexico's bi-weekly CPI on 22 September will be closely watched. Brazil's Q3 inflation report is also a key event.

Additional Notes

• The FX market is well supplied with USD, and the PBoC's measures suggest a more relaxed stance on RMB appreciation.
• The team believes that the RMB's movement will be somewhat asymmetric to the broader USD trend.
• The PBoC may resume FX purchases if a substantial FX surplus persists.
• CNHSGD and CNHJPY are seen as good proxies for the RMB index, with CNHJPY offering good carry as a buffer for risk-on strategies.