20160408-法国巴黎银行-EM_Strategy_Plus_37页_4mb

EM Strategy Plus Summary - April 2016

Core Content

This document provides a comprehensive analysis of emerging market (EM) strategies and opportunities for the week of April 8, 2016, with a focus on FX and interest rate markets. It outlines the current macroeconomic backdrop, key themes, technical factors, and specific trade recommendations.

Main Themes and Opportunities

1. Developed Market Policy Anchors and Technicals Support EM

• Positive Outlook: Developed market policy anchors and technical factors are expected to provide a favorable backdrop for EM in the near term.
• Fed Dovishness: The Fed's cautious approach to rate hikes and the drop in real yields (from 1.6% to 0.12%) support EM.
• Seasonality: April has historically been a strong month for EM FX and credit markets, with positive performance trends observed in the past five years.
• European Bond Supply: A large negative net bond supply in Europe (EUR 122bn) and ECB's quantitative easing are expected to create demand for EM assets.

2. Asian FX and Rates

• FX Strength: Asian currencies have shown strength, with the JPY rallying 9.7% since the start of the year.
• Central Bank Actions:
  • Korea and Taiwan: Did not intervene against their currencies.
  • Indonesia: Built FX reserves via USD sukuk issuance.
  • Malaysia: Did not build reserves.
  • China: FX reserves declined at a slower pace (USD 30bn in March).
• Interest Rate Opportunities:
  • India: RBI cut the repo rate by 25bp, and a further 25bp cut is expected in H2 2016.
  • South Korea: USDKRW is expected to test 1,120, with a short position recommended.
  • Singapore: A 2y SG IRS receiver versus US rates is recommended, with a target of 0.45%.
  • Thailand: Continued QE and USD weakness support local rates.
  • Japan: A potential rate cut on April 28 is anticipated.

3. Central and Eastern Europe (CEEMEA)

• Poland: Recommend receiving 2y2y forwards at 1.89%, targeting 1.30% with a stop at 2.00%.
• Hungary: Recommend a 2-5y flattener, with a target of 1.30% and a stop at 2.00%.
• Turkey: Recommend paying 5y XCCY swaps at 10.09%, targeting 10.70% with a stop at 9.85%.
• Israel: Recommend a 1y2y receiver at 62, targeting 20 with a stop at 80.

4. Latin America (Latam)

• Brazil: Market sentiment has improved due to global risk-off moves, and the long USDBRL position is taken profit. A Di Jan17 payer is recommended.
• Mexico: USDMXN has risen close to 18, increasing the likelihood of FX intervention. A 6m TIIE spread over US OIS is recommended.
• Colombia: A higher-than-expected CPI release suggests a potential hiking cycle, supporting a 6m-18m IBR flattener strategy.
• Argentina: Recommend buying 3-month Lebac at 33%, targeting 30% with a stop at 35%.

Key Recommendations

Risks and Outlook

• May Risk: EM is expected to underperform in May, with a potential upside risk in US nominal rates.
• China's Impact: China's occasional mini-devaluations and the central bank's policy stance may affect EM FX.
• Global Events: IMF Spring Meetings and central bank decisions may influence EM markets.

Additional Insights

• FX Reserves: March FX reserves showed a shift in central bank behavior, with some not intervening in currency markets.
• Market Conventions: Details on ARS-denominated bonds, including specifications and cash flow structures, are provided for Argentina.
• Seasonality Tables: Tables highlight historical FX performance and Eurobond trends across different months, with April showing positive results for EM.

Conclusion

The document emphasizes a positive outlook for EM in April, driven by supportive DM policies, FX strength in Asia, and technical seasonality factors. Specific trade recommendations are provided for FX and interest rate instruments across key EM regions, with caution advised for May due to potential market volatility.