20140131-法国巴黎银行-EM_Strategy_Plus_19页_1mb

EM Strategy Plus Summary - 31 January 2014

Key Views and Asset Allocation

The report outlines a bearish outlook on emerging markets (EM) but highlights that central banks are taking policy actions to address the situation. Key asset allocations and views include:

• Turkey: Moved from underweight to slight overweight due to the CBRT's significant rate hike and the belief that further tightening is likely.
• Hungary: Adjusted to neutral as it has substantial FX reserves and the central bank may intervene to stabilize the currency.
• Poland: Slightly underweight, with a recommendation to switch from POLAND '19 to POLAND '23 bonds.
• South Africa: Remains underweight, but the SARB may need to hike again in March due to inflation concerns.
• Russia: Underweight, with a recommendation to switch from RUSSIA '42 to RUSSIA '22 bonds.
• Brazil: Sell BRL due to fundamentals, with a bearish stance on the currency and a recommendation to switch from SAGB '23 to SOAF '25.
• Asia: FX and rates markets remain stable, with the SGD and INR expected to weaken. The PHP is still favored, and NDIRS and steepening views are noted in several markets.
• Argentina (ARS): A new round of depreciation is expected, with USDARS forecast to reach 8.50 by end Q1, 10.00 by end Q2, 11.50 by end Q3, and 12.75 by end Q4. The report highlights the unsustainability of the current policy mix and the need for a structural correction.

Trade Review

Several trades are reviewed, including:

• Long PLNHUF: Target extended, stop-loss tightened.
• Short BRLMXN: Fundamentals unchanged, with further pressure expected on the ARS.
• Receive Jan'15 PRExDI: Position adjusted due to stretched levels.
• Pay 1y1y ZAR vs HUF IRS: Slightly overweight.
• Receive 2s3s5s SGD IRS: Added to the portfolio.
• Switch out of POLAND '19 into POLAND '23: To capture better value.
• Buy SOAF '25 vs SAGB '23: To benefit from the expected depreciation of the ARS.
• Buy ICELAND '22 and '16: In CDS-basis packages.
• Buy 1m USDSGD call spread: Expected to benefit from USD strength.

Key Risk Events

• Central Banks: NBR, NBP, and the central bank of the Philippines will decide on rates in the coming week.
• Thailand: Upcoming parliamentary election may not resolve the political stalemate.
• China: Lunar New Year holidays will cause a week-long shutdown.
• Indonesia: Trade data and FX reserves will be released in early February.

EM Focus: Miranda Rights

The report argues against the overly bearish narrative surrounding EMs, suggesting that central banks in countries like Turkey, South Africa, India, and Brazil are taking meaningful policy actions. It emphasizes the importance of considering the positive factors and the potential for EMs to remain an attractive investment despite the current challenges.

ARS: Worst is Yet to Come; Limited Spill-over

• ARS Depreciation: Expected to continue with a nominal depreciation of 59% by December 2014.
• Fiscal Deterioration: No signs of reversion, with the headline fiscal deficit projected at 5.3% of GDP in 2014.
• Labour Costs and Inflation: Unions are expected to demand a 40% salary increase, which could accelerate depreciation. Unofficial inflation is at 3.05% m/m, and inflation expectations are high.
• International Reserves: Under pressure, declining at 30% y/y, driven by depreciation expectations and failed government interventions.
• Structural Factors: The report identifies potential counter-weighting events, such as the Paris Club agreement, lower labour costs, and energy subsidy reductions, but considers them less likely to offset the depreciation trend.

Summary of New Recommendations

Conclusion

The report suggests that while the EM market faces significant challenges, central banks are actively responding, and there are opportunities in certain markets. The focus is on the need for structural adjustments, the potential for further depreciation in the ARS, and the importance of considering both FX and credit strategies in the context of global monetary tightening and EM-specific vulnerabilities.