20180115-法国巴黎银行-EM_Strategy_Desknote_9页_322kb

EM Strategy Desknote Summary

Core Content

This document outlines the outlook for Emerging Markets (EM) in 2018, emphasizing the strong start of the year and the evolving challenges that may affect the performance of EM assets throughout the year. The analysis is provided by BNP Paribas, focusing on the interplay between global economic conditions, monetary policies, and EM-specific factors.

Main Points

• Strong Start to 2018:
  Emerging Markets have begun 2018 with positive momentum. EM equities are up 3.5%, EMFX is up 1.5% against the USD, and EM credit spreads have tightened by about 10 basis points (bps).

  • Commodity prices, particularly oil, have risen, benefiting EM countries like Colombia, Brazil, Russia, and Malaysia.
  • The rise in commodity prices is attributed to global economic growth and geopolitical concerns.
  • However, some countries like South Africa and Argentina have underperformed due to internal issues and inflation concerns.

• Global Growth and Low Interest Rates:

  • The "goldilocks" scenario of strong global growth and low G4 (Group of Four) interest rates is expected to continue at least for the first four months of 2018.
  • This environment is supportive of EM fixed income and equities, following strong performance in 2017.
  • MSCI EM was up 32% in 2017, EM credit by 8%, and local EM markets by 14%.

• QE Reduction and Market Volatility:

  • Quantitative easing (QE) is expected to decline significantly by the end of 2018, from USD 80bn per month to USD 30bn per month, which could reduce the inflow of capital into EM assets.
  • The US Federal Reserve may become more hawkish due to rising inflationary pressures, increasing market volatility.
  • However, reflationary trends are likely to support EM equities and commodity prices.

• Inflation Expectations and Central Bank Responses:

  • Inflation expectations are expected to rise in EM, not the US, which may prompt central banks to start rate hikes.
  • Countries like the Czech Republic, South Korea, India, and possibly Poland may increase interest rates.
  • Mexico and Turkey have already raised rates, and may do so again before cutting rates when inflation subsides.
  • Russia and Argentina may cut rates due to improving inflation expectations.

• Seasonal Factors and Trade Risks:

  • May is historically a challenging month for EM, often marked by negative FX performance.
  • US trade decisions, such as those related to NAFTA and sanctions on Russia and Iran, may cause concern for EM markets.
  • While these issues could affect certain EM countries, they are unlikely to impact EM as a whole.
  • A significant escalation in trade tensions with China is also considered unlikely due to the US's reliance on Chinese support for North Korea-related matters.

Key Information

• Performance Highlights:

  • EM equities: +3.5% year-to-date
  • EMFX: +1.5% vs. USD
  • EM credit: ~10bps tighter

• Important Trends:

  • Global trade is rebounding after a decline in 2015-2016.
  • China's economic growth remains a key driver, with proxy indicators showing strong momentum.
  • Inflationary pressures are rising in EM, particularly in Central Europe, with wage growth near or over 7%.

• Potential Risks:

  • Diminishing QE and rising inflation expectations may reduce the favorable conditions for EM assets.
  • Trade tensions with the US could create market volatility, especially in May.
  • Some EM countries may face challenges due to internal policy issues or inflation concerns.

Strategy Contacts

Production and Distribution

• Contact Details:
  • Barbara Consuelo: Foreign Exchange, London. Tel: 44 20 7595 8486, Email: Barbara.Consuelo@uk.bnpparibas.com
  • Amanda Grantham-Hill: London. Tel: 44 20 7595 4107, Email: amanda.grantham-hill@uk.bnpparibas.com
  • Anna McLauchlin: London. Tel: 44 20 7595 3754, Email: anna.mclauchlin@uk.bnpparibas.com
  • Louise Bylicki: New York. Tel: 1 212 471 6479, Email: louise.bylicki@us.bnpparibas.com

Legal Notice

• This document is non-independent research and is a marketing communication.
• It does not constitute investment research for the purpose of MiFID.
• BNP Paribas may have financial interests in the issuers mentioned, and conflicts of interest may exist.
• No liability is accepted for any use of the document or its content.
• The document is for information purposes only and is not an offer to sell or a solicitation to buy.
• It contains simulated performance data and is not guaranteed to reflect actual results.
• The information may not be suitable for all investors and is subject to change without notice.

US Disclosures

• Options: Complex instruments with high risk, suitable only for sophisticated investors.
• ETFs: Carry risks such as tracking error, currency, and geopolitical risks.
• BNP Paribas may act as a market maker, advisor, or underwriter for the ETFs discussed.
• The document does not constitute a prospectus and is not intended as an official transaction confirmation.
• BNP Paribas may have conflicts of interest and may engage in transactions that are inconsistent with the views expressed.