20160513-法国巴黎银行-EM_Strategy_Plus_33页_2mb

EM Strategy Plus Summary - 13 May 2016

Core Content

This report outlines the current state of Emerging Market (EM) FX and credit strategies, highlighting key opportunities and risks across various regions. The main focus is on FX trades, credit basis analysis, and market outlook for the coming week.

Main FX Trade Recommendations

EM FX Turbulence in May

• EM FX has been volatile in May, creating opportunities.
• The main driver of currency weakness was equity outflows, not fixed income outflows.

Top FX Trade Recommendations

• Short CADMXN: MXN is undervalued and likely to retrace towards stronger levels.
• Buy 3m USDTHB: THB is expected to depreciate due to limited external catalysts and BoT's stance.
• Buy 3m USDKRW DNT Option (strikes 1,130 & 1,230): KRW is expected to trade within a 5% range, with BoK likely to intervene against sharp depreciation.
• Buy 1m USDTRY Call at 3.00, Sell 1m Calls at 3.05 & 3.08: TRY is expected to depreciate further due to political uncertainty.
• Buy Vietnam 5y Basis & 4y CDS: Vietnam's credit basis is extremely cheap, with potential for performance.
• Buy Hungary 5y Basis & 5y CDS: Hungary's credit basis is also cheap, and the 5y basis trade remains active.
• Buy Lithuania 5y Basis, Sell Latvia 5y Basis: Lithuania is likely to issue USD debt, offering a better yield pickup.
• Buy Vietnam 4y CDS: Vietnam's CDS is at a favorable level with potential for carry.

Key FX Positions

Key Credit Basis Analysis

Global EM Credit Basis

• The global EM credit basis has sold off after issuance peaked, but remains close to its lowest levels in the current volatility regime.
• EM credit basis is cheap compared to DM and has room for performance.
• Asia offers the cheapest basis regionally, while Latam is the most expensive.
• The CEEMEA euro basis is cheaper than the USD basis due to the proliferation of CEE countries.

Recommended Credit Basis Trades

• Buy Vietnam 5y Basis & 4y CDS: Vietnam's basis is extremely cheap, with a 72bp pickup.
• Buy Hungary 5y Basis & 5y CDS: Hungary's basis is also cheap, with a 65bp pickup.
• Buy Lithuania 5y Basis, Sell Latvia 5y Basis: A 20bp yield pickup due to tender expectations.
• Buy Turkey 5y Basis & 5y CDS: Turkey's basis is extreme, but carry is negligible.
• Buy Indonesia 5y Basis: An ongoing recommendation from the trading and sales relative value analyst.

Regional Outlook

Asia

• USD longs are back in vogue, with a preference for high-yielding currencies.
• The Bank of Thailand's stance on THB appreciation is a key factor.
• The Philippines' election had a positive impact on local markets, but cabinet uncertainties remain.
• Expected data releases include Q1 GDP for Thailand, the Philippines, and Singapore.

CEEMEA

• The global EM credit basis is underperforming, with Asia being the most attractive.
• Hungary and Turkey are the most attractive in liquid CDS, with Hungary offering a better yield pickup.
• CEEMEA's CDS basis has underperformed due to supply and liquidity issues.
• The 10y Hungarian government bond is yielding 40bp more than the Polish 10y, indicating a better value.

Latam

• The Mexican peso is the most undervalued currency in the region.
• The BRL is expected to appreciate, but the central bank will likely cap the pace.
• Brazil's political developments and fiscal reforms are key for the BRL outlook.
• The BCB is expected to unwind FX swaps, limiting BRL appreciation.

Upcoming Events

• Thailand, Philippines, South Korea: Central banks kept rates unchanged.
• Indonesia and Malaysia: Expected to keep policy unchanged in the coming week.
• GDP Releases: Q1 GDP for Thailand, Philippines, and Singapore.
• Turkey: AKP congress on 22 May and CBRT meeting on 24 May.
• Russia: IRS rates continue to fall, with basis shrinking.
• Brazil: New government and potential fiscal measures.
• Mexico: USDMXN above 18, with potential for central bank intervention.

Conclusion

The report identifies several attractive FX and credit trades, particularly in Asia and CEEMEA, with a focus on undervalued currencies and cheap credit basis opportunities. Political and economic developments in key markets like Turkey, Brazil, and Mexico are expected to influence currency movements, while central bank interventions and fund flows will shape the credit basis outlook. The overall sentiment is cautiously optimistic with a strong emphasis on risk management and positioning.