20161202-法国巴黎银行-EM_Strategy_Plus_30页_2mb

EM Strategy Summary – Global Weekly (02 December 2016)

Core Content

This document outlines the EM Strategy Plus report for the week of 02 December 2016, providing insights and trade recommendations across Asia, CEEMEA, Latam, and Turkey. It highlights the current state of emerging market currencies, corporate FX debt in Turkey, and the outlook for key markets based on economic and financial models.

Main Themes and Recommendations

Asia: Seeing CLEERLY

• Key currencies: SGD, CNY, PHP have depreciated, reducing their overvaluation against the CLEER™ model's fair value estimate.
• 12m FX forwards vs CLEER™ forecast:
  • IDR and MYR appear oversold.
  • SGD, TWD, and CNY still have scope to depreciate.
• New trade recommendation: Sell SGD vs IDR via 12m NDFs.
  • PV01/Notional: SGD 20m
  • Entry level: 10,320
  • Target: 9,500
  • Stop: 10,800
• CLEER™ Model:
  • A medium-term fair-value model based on macroeconomic data and regression techniques.
  • Forecasts 12–24 months ahead, focusing on the USD/currency exchange rate.
  • CLEER™ suggests IDR is undervalued, while SGD has room to depreciate.
  • The model is not a market-timing tool, but supports long positions in IDR vs SGD due to real yield differentials.

Asia: Sell SGD versus IDR

• Reasoning:
  • IDR is significantly undervalued relative to SGD.
  • The SGD is heavily influenced by USD trends, while IDR behaves more like a commodity currency.
  • USDIDR deviation from PPP is largely due to Indonesian export price trends, especially coal.
  • The cross carry is around 8.5%, offering a cushion against volatility.
  • Real yields in Indonesia are expected to remain high due to modest inflation and political stability.
• Key Risks:
  • Sharp rise in US real rates could trigger a sudden-stop in flows, leading to IDR depreciation.
  • If Chinese coal demand declines, Indonesian export prices may fall, negatively impacting IDR.
  • MAS policy shift to a more hawkish stance could benefit SGD.
  • Short-term underperformance may be due to short SGD positions and negative investor flows into EM bonds.

CEEMEA: No New Trade Recommendations

• Focus:
  • South Africa: S&P ratings review and Q3 2016 GDP data.
  • Poland: Central bank meeting with no expected policy change.
  • Hungary: November CPI inflation data expected to rise to 1.3% y/y.
  • Czech Republic: CPI inflation forecast to rise to 1.1% y/y.
  • Russia: CPI inflation expected to fall to 5.4% y/y, with no rate cuts before Q1 2017.

Latam: Key Market Outlook

Brazil

• Political: Quiet week; final vote on spending cap bill expected on 13 December.
• Economic: BCB cut rates by 25bp, signaling acceleration of easing.
• Recommendation: Long BRL against a basket of AUD, CLP, and EUR.
• Expectation: Reduction in domestic premium due to rate cuts and fiscal reform.

Mexico

• Economic: MXN benefited from OPEC meeting but still embeds a significant FX premium.
• Inflation: November CPI expected to show FX pass-through and higher inflation.
• Recommendation: Long UDIBonos (real rates) due to carry and inflation trends.

Colombia

• Economic: November monetary policy meeting minutes to be released.
• Expectation: Potential easing cycle after two board members voted for rate cuts.
• Recommendation: 3y receiver on IBR curve due to positive oil dynamics and support for peso.

Turkey: Corporate FX Debt – Whose Problem Is It?

• Corporate FX Debt:
  • Sharp rise in FX debt linked to infrastructure projects with guaranteed FX purchase prices.
  • FX debt-to-GDP ratio rose by 26pp since 2008, second fastest in EM after China.
  • At end-August 2016, total open FX position of corporates reached USD 210bn, with net FX long by locals at USD 103bn.
• FX Risk:
  • FX risk has not increased as fast as FX debt, suggesting fiscal management is a key concern.
  • CBRT Financial Stability Report highlights that corporate FX risk is managed through government guarantees and PPP projects.
  • Sovereign CDS spreads are expected to remain high due to corporate FX debt concerns.

Key Takeaways

• Asia: IDR is undervalued and expected to outperform SGD in the medium term.
• CEEMEA: Focus on inflation and GDP data, with no new trade recommendations.
• Latam: BRL is recommended as a long position, supported by interest rate easing and fiscal reforms.
• Turkey: Corporate FX debt is a fiscal issue, not a broader financial instability problem.
• Risks: Protectionism, US real rate hikes, and shifts in central bank policies could impact trade performance.

Trade Summary

Summary of Key Risks and Opportunities

• Asia: IDR undervalued, SGD has depreciation potential, but risks from protectionism and US real rate hikes.
• CEEMEA: Inflation and GDP data are critical, with no new trades.
• Latam: BRL is supported by rate cuts and fiscal reforms, while MXN and COP are influenced by inflation and commodity trends.
• Turkey: Corporate FX debt is fiscal, not financial, and supported by government guarantees and PPP projects.

Conclusion

The report provides a detailed analysis of emerging market currencies and corporate FX debt in Turkey, with a medium-term trade recommendation to sell SGD vs IDR. It also highlights the economic outlook for key regions and the potential impact of global trade trends and central bank policies on EM assets.