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EM Strategy Summary - 25 April 2018

Core Content Overview

This document outlines the Emerging Markets (EM) strategy for the day, covering key market outlooks and investment recommendations across various regions. It is produced by BNP Paribas and includes insights from multiple strategists and legal disclosures.

Key Market Outlooks

Turkey

• Expected Policy Move: The Central Bank of Republic of Turkey (CBRT) is anticipated to raise the late liquidity window rate and the weighted average cost of funding by 50 basis points (bps), bringing the rate to 13.25%, in line with market consensus.
• Economic Context: A recent slowdown in economic activity has reduced the likelihood of a larger rate hike.
• Policy Statement: The CBRT is expected to retain the phrase "if needed, further monetary tightening will be delivered," reinforcing its policy stance.
• Investment Recommendation: The strategy recommends buying 10-year local bonds and FX unhedged, based on the anticipated rate hike.

Hong Kong Dollar (HKD)

• Focus Area: The HKD is approaching the weak side of the HKMA's 7.75–7.85 trading band.
• Market Sentiment: Asian equity and FX markets are trading weaker, reflecting a risk-off tone.
• Intervention Risk: Further HKD intervention is expected, following recent actions by the HKMA.

Brazil

• Market Dynamics: The Brazilian real is currently in oversold territory.
• NDF Positioning: The NDF market has been a consistent explanatory factor for recent BRL depreciation.
• Strategy Adjustment: The strategy has increased allocation to DI Jan-25 at 9.67%, based on current market dynamics and the base case scenario for upcoming presidential elections.

Regional Highlights

• CEEMEA: The focus is on Turkey, with the CBRT expected to raise rates by 50bps. Hungary's MNB kept the policy rate at 0.9%, with expectations of 3% inflation by mid-2019.
• Latam: The strategy in Brazil has shifted to the long end of the curve (DI Jan-25) following the assessment of market dynamics and political outlook.

Strategy Contacts

Legal and Regulatory Information

• Non-Independent Research: This document is non-independent research for the UK Financial Conduct Authority (FCA) and is a marketing communication under MiFID II.
• Conflicts of Interest: It may be subject to conflicts of interest due to the interaction with sales and trading teams.
• Disclaimer: The information and opinions are based on public sources and may not be independently verified. No liability is accepted for any inaccuracies or omissions.
• No Investment Advice: The document does not constitute investment, financial, legal, or tax advice.
• Performance Data: Any performance data is based on back-testing and is for illustrative purposes only.

Important Disclosures

• Options and ETFs: These instruments are complex and carry high risk. They are suitable only for sophisticated investors. BNPP may have conflicts of interest related to these products.
• Restricted Securities: Certain securities may not be registered under U.S. law and are considered "restricted securities" under Rule 144A.
• Confidentiality: The information is provided on a strictly confidential basis and must not be distributed without prior written consent.
• Jurisdictional Restrictions: The document is intended for professional clients and may not be available to all investors. It may not be suitable for retail investors.

Additional Information

• Online Resources:

  • BNP Paribas Global Markets Website: www.globalmarkets.bnpparibas.com
  • BNP Paribas Strategy Website: www.strategy.bnpparibas.com

• Bloomberg Research Codes:

  • Fixed Income Research: BPFR
  • G10 Interest Rate Research: BPBS
  • Emerging Markets Research: BPFR
  • Market Economics: BPEC

• Legal Notice:

  • This document is for information purposes only and may not be used as a basis for investment decisions.
  • No guarantee is made regarding the accuracy or completeness of the information.
  • Indicative prices and terms are not binding and may vary significantly based on market conditions.

• U.S. Disclosures:

  • The report may be distributed by BNPP Securities Corp. to institutional investors under FINRA rules.
  • Some securities may not be registered under U.S. law and are restricted to Qualified Institutional Buyers (QIBs) or non-U.S. persons.

Regulatory Information by Country

• UK: Communicated by BNPP London Branch, authorized by the ECB, ACPR, and FCA.
• France: Produced and/or distributed by BNPP SA and BNPP Arbitrage, supervised by ECB and ACPR.
• Germany: Distributed by BNPP S.A. Niederlassung Deutschland, supervised by ECB and ACPR.
• Belgium: Supervised by ECB, ACPR, and FSMA.
• Ireland: Distributed by BNPP S.A., Dublin Branch, regulated by ECB and ACPR.
• Italy: Distributed by BNPP Italian Branch, authorized by ECB, ACPR, and Bank of Italy.
• Netherlands: Distributed by BNPP Fortis SA/NV, Netherlands Branch, supervised by ECB, ACPR, and AFM.