20130920-巴黎银行证券-EM_Strategy_Plus_14页_1mb

EM Strategy Plus Summary - 20 September 2013

Core Content

This report from BNP Paribas provides a comprehensive analysis of emerging market (EM) strategies, focusing on FX, local debt, and credit opportunities. It highlights the impact of the FOMC's decision not to start tapering, which has led to a positive shift in EM sentiment, and offers specific trade recommendations across several countries.

Key Views and Asset Allocation

• EM Focus: Not everything sold off is cheap. While some EMs have benefited from the FOMC's decision, others still face long-term issues, particularly those with current account deficits and high wage growth.
• Preferred Markets: Korea and Poland remain the preferred markets for EM investors, especially cross-over investors.
• Underweight Markets: Turkey, India, and Brazil are underweight due to potential problems if Fed tapering resurfaces. Malaysia is now the main underweight in the portfolio.
• Colombia: Still attractive despite not being in the theoretical benchmark, due to robust FDI-related USD flows and signs of economic recovery.
• Portfolio Adjustments: The portfolio has been revamped, increasing allocations to Russia and Thailand while reducing underweights in Turkey and Brazil.

Trade Recommendations

FX and Debt Outlook

Malaysia

• USD/MYR is expected to consolidate, with limited room for further appreciation.
• Short duration on MGS due to unfavourable supply dynamics.
• Switch from 10y MGS to 10y ThaiGB.

Indonesia

• IDR is expected to stabilise as liquidity improves.
• Slightly overweight local debt.
• Extend duration on 35s as they are the cheapest on the curve.

Thailand

• USD/THB is expected to trade in the 30.9-31.5 range.
• Buy 10y THAIGBs as they are undervalued relative to MGS.
• ThaiGB curve has steepened, with 10y bond yields almost 30bp above 10y THB IRS.
• Total long bond supply for FY2014 is THB 375bn, with net supply being the lowest since 2008.

Poland

• EURPLN is expected to appreciate, with a target range of 4.00-4.10.
• Overweight local debt, particularly the back end.
• 2s5s flatteners recommended for local rates.

Hungary

• EURHUF is recommended to be bought on dips below 300.
• 17/A offers the best value on the curve.
• 2s5s10s fly to move higher.

Turkey

• USTRY could extend to 1.92, but the lira is still underweight.
• Short duration due to negative currency outlook.
• Pay front-end FX swaps to protect against USDTRY spikes.

Russia

• RUB basket is expected to strengthen towards 36.00.
• OFZs are attractive on both the front end (rate cuts) and back end (currency effect).
• Switch from RUSSIA'42 to RUSSIA'22, with new 19 and 30s offering value.

Brazil

• USD/BRL may consolidate above 2.15, but the medium-term outlook remains negative.
• Shorten duration as currency could spark a steepening of the curve.
• 5y CDS is expected to test this year's lows (80-90bp).

Mexico

• Buy the peso as the bond market outlook has improved.
• Increase duration to MBONO'22.
• 1y1y is expected to test this year's low below 4.20.

Key Risk Events

• German Election: Could increase focus on the European periphery.
• Hungary's Rate Decision: Expected to cut rates by 20bp, making EURHUF a potential buy.
• Colombia's Rate Decision: Expected to have no change, supporting the sell USDCOP trade.

Competitiveness and Inflation

• Inflation Matters: Inflation-adjusted exchange rates are more important than nominal rates in assessing competitiveness.
• Wage Growth: Countries like Turkey, Malaysia, and South Africa have experienced strong wage growth, which has negatively impacted their current accounts.
• Competitiveness Drivers: Improved productivity and competitiveness in Poland and Colombia support further appreciation of their currencies.

Investment Implications

• Korea and Poland: Remain the preferred markets due to improved fundamentals and reduced debt.
• Colombia: Still attractive despite not being in the benchmark, due to FDI inflows and economic recovery.
• Thailand: Offers value in local debt, with a strong outlook for inflows due to improved debt dynamics.
• Russia: High-yielding status and strong external balances make it a good candidate for inflows.
• Brazil: Despite its high yields, remains underweight due to its economic vulnerabilities.

Charts and Data Highlights

• Chart 1: Shows the cumulative change in REER and NEER since Q1 2009, indicating that some EMs have not seen significant real depreciation.
• Chart 2: Highlights manufacturing wage growth, showing that countries like Turkey and Malaysia have seen strong increases, affecting competitiveness.
• Chart 3: Demonstrates the steepening of the ThaiGB curve, with 10y bond yields at a premium over 10y THB IRS.
• Chart 4: Compares the 10y MGS and ThaiGB, showing MGS as overvalued and ThaiGB as undervalued.

Conclusion

The report suggests that while the recent FOMC decision has provided a boost to EM sentiment, not all EMs are equally attractive. Investors should focus on markets with improved competitiveness and debt profiles, such as Korea, Poland, and Thailand, while being cautious about those with high inflation and wage growth, like Turkey and Brazil. The overall strategy involves switching from overvalued assets to undervalued ones and managing FX exposure through swaps and hedging.