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FX & IR EM Strategy Summary - 10 February 2014

Core Content Overview

This document provides a detailed analysis of foreign exchange (FX) and interest rate (IR) flows in Emerging Markets (EM) as of 10 February 2014. It includes insights into equity and bond flows across Asia, CEEMEA, and Latin America (LATAM), alongside data on FX reserve changes and key notes on the data sources and limitations.

Main Points

EM Fund Flows

• EPFR reported a week of outflows from EM funds, totaling USD 1.38bn, which was smaller than the previous week's USD 1.97bn.
• Overall, EM fund flows showed a mixed trend, with some countries experiencing reversal of outflows due to improved foreign bond inflows and equity flows.

Asia Equity and Bond Flows

• Equity Flows:
  • Foreign equity outflows in Asia were mixed.
  • Thailand saw a significant USD 645mn outflow in January, with a decline in foreign ownership of government bonds from 17.8% in December to 17% in January.
  • India, Korea, Indonesia, and Thailand experienced rebound in bond inflows, with India and Korea showing notable inflows.
• Bond Flows:
  • Asia's monthly net bond flows were mixed, with India, Korea, and Thailand showing positive inflows.
  • Thailand saw foreigners selling USD 721.4mn of government bonds, but buying USD 87.9mn of BOT bonds.
  • Korea had a decline in foreign equity holdings but bond inflows showed a rebound.
  • Philippines and Indonesia had positive bond inflows, though data coverage was limited.

CEEMEA Bond Flows

• Non-resident flows in CEEMEA were mixed.
  • South Africa saw inflows of USD 400mn in its local debt market after seven weeks of outflows from SAGBs.
  • Hungary experienced outflows of USD 475mn from HGBs.
  • Turkey saw foreign bond holdings fall by USD 1.2bn, primarily due to a USD 0.7bn decline in repo holdings.
  • 2014 and 2018 bonds had declines of TRY 1.6bn and TRY 0.5bn respectively, while 2022 and 2023 bonds saw TRY 0.3bn of net inflows.
  • Net foreign flows to the stock market were broadly balanced.

LATAM Bond Flows

• Mexico concluded January with a net outflow of MXN 5.39bn, but the impact of Turkey's emergency hike was not yet reflected in the data.
• Foreign participation rate in Mexico ended at 41.12%, a slight decline from 41.59% in December.
• Flow activity in January was focused on Mbono ASW curve trades, with limited outright selling or risk addition.

Key Information

FX Reserve Accumulation

• Asia: FX reserves showed mixed monthly changes, with some countries like India and Korea experiencing positive inflows.
• CEEMEA: FX reserves also had mixed changes, with South Africa showing positive inflows and Hungary experiencing outflows.
• LATAM: FX reserves were mixed, with Brazil and Colombia showing positive inflows, while Mexico had negative flows.

Data Notes

• Equity flows are sourced from local stock exchanges and BNP Paribas, with daily data potentially overestimating inflows due to net purchases not accounting for redemptions.
• Bond flows are reported by central banks and financial institutions, with limitations in coverage for certain asset classes.
• Data for KRW and THB in bond flows uses daily data for May, with coverage limits mentioned in the Appendix.

Summary of Regional Trends

Key Contacts

Disclaimer

• This document is non-independent research and is a marketing communication.
• It is not an exhaustive analysis and may be subject to conflicts of interest.
• No liability is accepted for any loss arising from reliance on the report.
• All information is based on public sources and may be subject to change.
• Past performance is not indicative of future results.