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FX & IR EM STRATEGY Summary

Core Content

This report provides an overview of the flows into and out of emerging market (EM) assets, focusing on equity and bond markets across Asia, CEEMEA, and Latin America (LATAM) as of 10 March 2014. It also includes details on foreign exchange (FX) reserve accumulation and the factors influencing investment flows.

Main Points

Emerging Market Bond Flows

• Overall: Emerging market bond funds experienced outflows, though the pace has slowed.
  • Hard currency bond funds: USD 250mn outflows
  • Local currency bond funds: USD 322mn outflows
• Equity Funds: Continued to see large outflows, with EM equity funds recording USD 3.8bn in outflows.

Asia

• Equity Flows: Portfolio inflows picked up in March after a positive February.
  • All countries saw equity inflows last week, with Taiwan leading the way.
• Bond Flows:
  • India: Bond inflows accelerated.
  • Thailand: Bond flows turned positive.
  • Indonesia: Net inflows slowed due to profit-taking.
• Korea:
  • Net bond outflows of USD 1.7bn in January.
  • MSB had the largest outflow, while KTB had small inflows.
• Foreign Ownership:
  • Foreign ownership of Korean bonds reached USD 86.8bn.
  • Foreign holdings of Korean bonds represented 16.4% of outstanding bonds.
  • The percentage of foreign ownership peaked at 18.6% in Q2 2013.

CEEMEA

• Turkey:
  • Foreign bond holdings increased by USD 0.1bn.
  • Non-bank foreign investors increased holdings by TRY 2.5bn.
  • Foreign banks reduced holdings by TRY 1.2bn.
  • Offshore branches of Turkish banks reduced holdings by TRY 1bn.
• South Africa:
  • Foreign bond holdings increased.
• Hungary:
  • Foreign bond holdings increased.
• Foreign Ownership:
  • Data on foreign ownership and flows are provided for Turkey, South Africa, and Hungary.

LATAM

• Mexico:
  • Foreign ownership of local debt reached a historical high of 42%.
  • Inflows continued into the end of February.
  • Factors contributing to inflows: slow US recovery, residual positive sentiment from upgrade, poor Mexico GDP, and below-consensus CPI.

Key Information

• Equity Flows: Asia saw a rebound in equity inflows in March, with Taiwan leading the way.
• Bond Flows:
  • India and Thailand experienced positive bond flows.
  • Indonesia saw a slowdown in inflows.
  • Korea had a significant net bond outflow in January.
• Foreign Bond Ownership:
  • In Asia, foreign ownership in Korean bonds was at USD 86.8bn, representing 16.4% of outstanding bonds.
  • In CEEMEA, Turkey and South Africa saw increased foreign bond holdings.
  • In LATAM, Mexico had the highest foreign ownership at 42%.
• FX Reserves:
  • Data on FX reserve changes is available for Asia, CEEMEA, and LATAM.
  • The report includes 3-month moving average (3mma) for FX reserve changes, indicating trends over time.
• Data Sources:
  • The report references various sources including EPFR, BNP Paribas, Bloomberg, local stock exchanges, and central banks.
  • It also includes notes on data limitations, such as:
    • Daily equity flows may not fully reflect actual capital flows.
    • Daily bond flows in India are influenced by monthly auctions.
    • Data in Thailand does not capture all bond types.
    • Indonesia data excludes SBI bills and corporate bonds.
    • Philippines data does not provide a breakdown between bond and equity flows.

Conclusion

The report highlights a mixed trend in EM flows, with equity funds experiencing significant outflows, while bond flows showed some positive developments in India, Thailand, and Mexico. FX reserve accumulation is also discussed, with specific data provided for Asia, CEEMEA, and LATAM. The analysis is based on bottom-up data and is non-independent research.

Appendix: Contacts

• Emerging Markets Strategy Contacts:

  • Bartosz Pawlowski – Global Head of EM Strategy (London)
  • Piotr Chwiejczak – FX & IR CEEMEA Strategist (London)
  • Dina Ahmad – FX & IR CEEMEA Strategist (London)
  • Stanislav Petrov – FX & IR CEEMEA Strategist (London)
  • Tatiana Tchembarova – CEEMEA Credit Strategist (London)
  • Erkin Isik – FX & IR CEEMEA Strategist (Istanbul)
  • Mirza Baig – Head of FX & IR Asia Strategy (Singapore)
  • Rohit K Garg – FX & IR Asia Strategy (Singapore)
  • Jasmine Poh – FX & IR Asia Strategy (Singapore)
  • Yii Hui Wong – FX & IR Asia Strategy (Singapore)
  • Gabriel Gersztein – Head FX & IR Latam Strategy (Sao Paulo)
  • Thiago Alday – FX & IR Latam Strategist (Sao Paulo)
  • James Z Hao – FX & IR Latam Strategist (New York)

• Production and Distribution Contact:

  • Diana Seifert – Foreign Exchange, London

Important Disclosures

• The report is non-independent research and non-objective.
• It is a marketing communication and may be subject to conflicts of interest.
• BNP Paribas may have financial interests in the mentioned entities and may have acted on the information before publication.
• The report is not intended for retail clients and is only for professional clients in certain countries within the European Economic Area.