20180328-法国巴黎银行-LATAM_FX_Quarterly__Q2_2018_FEER_model_update_10页_378kb

Latin America FX Strategy Summary: Q2 2018 FEER Model Update

Core Content

This document is a quarterly update of the long-term FX valuation model (FEER model) by BNP Paribas for Latin American currencies. The model evaluates the structural trends of currencies based on the convergence of countries towards sustainable current account (C/A) levels, with the FX rate acting as a clearing mechanism.

Main Points

• Model Hypothesis: The FEER model assumes that countries individually converge towards sustainable C/A levels, leading to a new equilibrium where FX rates act as a clearing mechanism.
• Methodology: The model calculates the theoretical nominal FX rate for each country based on its sustainable C/A level and elasticity parameters, incorporating lagged effects of FX movements on external accounts.
• Country-Specific Insights:
  • Brazil: The BRL has the highest margin for appreciation. The model suggests a nominal FX rate of ~3.00 to reach a sustainable C/A level.
  • Chile: The USDCLP has stabilized around 600, but the fair value model indicates a long-term equilibrium below 580.
  • Mexico: The FEER estimate remains stable at ~18.69, with a small increase from the market price.
  • Colombia: The model still indicates a long-term equilibrium above 3,100, with a 12.3% increase from the current market price.
  • Peru: The USD PEN fair value is at ~3.18, with a minor decrease from the market price.
  • Argentina: The current account has worsened significantly, reaching -4.8% of GDP. The model suggests USDARS should rise to 22.45, aligning with the end-of-year forecast of 22.50.

Key Information

• The FEER model is used to assess long-term FX trends, not as a short-term trading tool, but as a structural guidance.
• The model combines fundamental analysis with other frameworks such as the BEER model, technical indicators, and flow monitors for a more comprehensive view.
• The performance of the Argentine, Mexican, and Chilean pesos has been in line with previous FEER model conclusions.
• The BRL remains the currency with the highest potential for appreciation, according to the model.

Table of FEER Estimates

Open FX Positions

• Short USDBRL 3-month NDF: BRL is considered too weak; a tactical long position is recommended.
• Short UDSCOP 3-month NDF: Colombian Peso is going back into the long camp; taking profits on the long strategy.
• Long USDCLP 3-month NDF: Chilean Peso is in a tactical short position.
• Short USDPEN 3-month NDF: BEER model triggers a long PEN strategy.

Legal Disclaimer

• This document is non-independent research and is a marketing communication.
• It is intended for professional clients and eligible counterparties and may not be suitable for all investors.
• BNPP may have conflicts of interest due to its involvement in investment banking, underwriting, or advisory services.
• The information is based on public sources and may not have been independently verified.
• No liability is accepted for any losses arising from reliance on the information in this document.
• Indicative prices and estimates are not actual transaction terms and are subject to change.
• The document does not constitute an offer to sell or purchase any financial instrument.

Additional Disclosures

• Options: Complex instruments with high risk, suitable only for sophisticated investors.
• ETFs: May involve tracking error, currency, and geopolitical risks.
• Convertibles Securities: May not be registered under U.S. securities laws and are restricted securities.
• Distribution Restrictions: The document is distributed only to eligible investors in compliance with relevant legal and regulatory frameworks.

Conclusion

The FEER model provides a structural assessment of FX rates in Latin America, focusing on long-term trends and sustainable C/A levels. It serves as a foundational tool for strategic decision-making, complemented by other models and market analysis. The model highlights the BRL as the currency with the highest potential for appreciation, while the USDARS is expected to rise to 22.45, in line with the end-of-year forecast.