20140625-巴黎银行证券-Latin_America_Weekly_Strategy_57页_4mb

Latin America Weekly Strategy Summary (Week of 23-27 June, 2014)

Core Content

This report outlines the current economic and market scenario for Latin America and Emerging Markets (EM) in the context of global economic conditions, particularly focusing on the U.S. and China. The analysis includes both structural and tactical views on market behavior, emphasizing the role of U.S. Treasury yields and the risk-taking environment.

Main Views and Key Information

• China's Rebalancing Policy: China is pursuing a policy of economic rebalancing, which includes cleaning up the shadow banking system. While beneficial for long-term development, it is a concern for commodity-oriented EM economies in the short to medium term. The report does not consider a hard landing or sudden drop in growth, with a forecast for China growth to stabilize at 7.25% - 7.40%.

• U.S. Economic Acceleration: The U.S. economy is accelerating, with inflation relatively unresponsive. The ECB policy is supportive but has a lesser impact compared to U.S. quantitative easing (QE) and operation twist. The report suggests a "convergence" of EM to U.S. Treasuries and Corporate High Yield (HY) to stabilize at current levels, unless U.S. 10-year yields fall to 2.40% - 2.45%.

• Risk-Taking Scenario: The current favorable risk-taking scenario should not be mistaken for a structural break. A slow normalization of premium and cost of capital is expected, which supports a more tactical stance in trading strategies.

• Volatility and Risk Premia: A sustained period of low volatility has led to a false sense of security, distorting risk premiums and causing asset overvaluation in some cases. This volatility is a key factor in the current risk-taking mood and financial leverage.

• EM and Latam Outlook: The report suggests a neutral stance for Latin America, except for Mexico and Brazil linkers. Stabilization and small corrections are expected, not a significant sell-off. The UST10y yield volatility remains the most important exogenous factor for sustaining Latin America risk assets.

• GDP Forecast: Using 20 indicators lagged 2 months, the expected GDP growth is currently at 7.47%, with error bands of 7.01% - 7.93%.

• U.S. Economic Recovery: The U.S. is in a recovery phase, with the Conference Board Leading Indicator and other economic indicators pointing to steady growth. The model for U.S. economic indicators suggests an acceleration in CAPEX.

• Global Risk Premium: The global risk premium is abnormally low, with a high appetite for risk assets. The report indicates that a reversal is likely if this trend continues. The VIX Index and other components are showing a decline in risk-taking.

• FX and Interest Rate Positions:

  • Short USDBRL and USDCLP: These positions are based on tactical trades, with the U.S. dollar already overbought in the short term.
  • Long DI Jan-21: The DI Jan-21 is over-extended, with a target of 12.20%.
  • Long NTN-B May 2015 and Pay DI April-15: This trade is based on the expectation of U.S. yield normalization.
  • Long 2y break-even inflation: A trade on U.S. inflation expectations.

• Bond Market Dynamics:

  • The Brazilian Swap Curve is too flat, suggesting a pay DI Jan-18 and receive DI Jan-16 strategy.
  • The report highlights the impact of UST10y yield on EM sovereigns and local markets, with a focus on the dichotomy between EM and DM growth perspectives.

• Open Recommendations:

  • Brazil DI Strategy: Closed at +22bps on 29 Jan 2014.
  • Short USDBRL 3m NDF: Entered at 2.3001.
  • Short TRY/BRL: Entered at 1.060.
  • Short USDCLP and NZDCLP: At 562 and 478.50 respectively.
  • Pay 5y Swap CLPxCAM: At 4.24%, with a target of 4.58%.

Summary of Key Indicators

Summary of Positions

Summary of Trade Metrics

Rating: 1 = negative; 5 = very positive; 3m horizon