20140207-巴黎银行证券-EM_Strategy_Plus_15页_1mb

EM Strategy Plus Summary - 7 February 2014

Key Views and Asset Allocation

• The recent turmoil in emerging markets has led to a sharp adjustment in risk premia, creating pockets of value.
• There are opportunities to trade the relative resilience of the cash market.
• The portfolio has moved Hungary from underweight to a small overweight, with a recommendation to go long HGB 20/A via asset swaps (ASW).
• The PLN-EUR 2s5s10s IRS fly is recommended to be received, as the NBP's dovish stance suggests a closer alignment with the eurozone curve.
• The ZAR 1y1y forward is now recommended to be received, with a carry of 8bp per month.
• The BRL is still shorted, but Mexican data will be closely watched.
• In the sovereign credit space, a switch from SOAF '41 to ROMANI '44 is recommended.
• In Asia, paying 5y5y HKD vs USD is suggested due to structural factors.

Trade Review

• Receive 2s5s10s PLN vs EUR: Entry level 52bp, target 20bp, stop loss 60bp. Notional 25k USD.
• Buy HGB 20/A ASW: Entry level 70bp, target 40bp, stop loss 82bp. Notional 10k USD.
• Receive 1y1y ZAR IRS: Entry level 8.02%, target 7.40%, stop loss 8.30%. Notional 10k USD.
• Pay 5y5y HKD vs USD: Entry level 27, target 70, stop loss 7. Notional 10k USD.
• Buy 6m USDBRL 2.65 European Digital Call: Cost 27%, notional USD 1m.
• Switch out of SOAF '41 into ROMANI '44: Entry level 18, target -22, stop loss 38. Notional 10k USD.
• Switch out of POLAND '19 into POLAND '23: Entry level 25, target 5, stop loss 35. Notional 10k USD.
• Switch out of EUR-TURKEY '16 into EUR-TURKEY '17: Entry level 70, target 42, stop loss 30. Notional 10k USD.
• Switch out of RUSSIA '42 into RUSSIA '22 (cash): Entry level 1.9, target 3.8, stop loss 0.8. Notional 10k USD.
• Buy USDSGD: Entry level 1.273, notional USD 10m.

EM Focus: Assessing the Damage to Local Debt

• EM FX has taken the biggest hit, but credit risk premia in local bonds have also increased, leading to a re-pricing of asset swaps.
• The cash market shows relative resilience, and there are opportunities to trade this.
• In South Africa, the 1y1y forward is recommended to be received, with a carry of 8bp per month.
• The SARB rate hike has increased real rates and raised expectations of further hikes, but the country has more leeway due to less reliance on external funding.
• In Poland, the 2s5s10s fly has widened to historical highs due to stops in the 5y segment, and the recommendation is to receive this spread.
• The Polish curve is expected to mimic the eurozone more closely due to the NBP's dovish stance.
• The HUF, INR, and THB DNTs are seen as value trades due to high implied volatility and improved technical positions.

Key Risk Events in the Coming Week

• Mexico: Industrial production and vehicle sales data will be key for the short BRLMXN trade.
• China: Trade balance, CPI inflation, new RMB loans, and total social financing data will be closely watched.
• India: CPI and WPI inflation prints will be important for the RBI's policy decisions.
• CEEMEA and Latam: Q4 GDP releases and 5y government ASW data will be monitored.

Pockets of Value Following EM Turmoil

• Emerging-market assets have seen a respite, and the cash market is viewed as relatively resilient.
• The HGB 20/A in ASW is considered one of the cheapest bonds on the curve.
• Colombia's 16Bs are recommended for shortening duration due to potential pullbacks in COP.
• The Polish 5y segment has underperformed due to model liquidation, but the curve is expected to flatten.
• The ZAR has seen a reduction in depreciation pace post the SARB rate hike, though FX volatility remains high.
• The Brazilian DI curve is influenced more by domestic events than external ones, with a recommendation to pay the spread between Jan '19 and Jan '21.

Asset Swap (ASW) Rankings

• Hungary: HGBs are the cheapest in USD terms, with ASW ranking at the top.
• South Africa: Despite expensive local ASW terms, 5y bonds (and longer) are attractive.
• Colombia: COLTES has moved to the top of the EM league table due to the collapse in COP forward points.
• Poland: The 2s5s10s fly has widened to historical highs, but the curve is expected to mimic the eurozone.
• Romania: The country has a good chance of being upgraded by Fitch and S&P, with a declining debt/GDP ratio.

Strategic Recommendations

• Buy HGB 20/A ASW: Target 40bp, stop loss 82bp.
• Receive 2s5s10s PLN vs EUR: Target 20bp, stop loss 60bp.
• Receive 1y1y ZAR IRS: Target 7.40%, stop loss 8.30%.
• Pay 5y5y HKD vs USD: Target 70, stop loss 7.
• Buy 6m USDBRL 2.65 European Digital Call: Cost 27%, notional USD 1m.
• Switch out of SOAF '41 into ROMANI '44: Target -22, stop loss 38.
• Switch out of POLAND '19 into POLAND '23: Target 5, stop loss 35.
• Switch out of EUR-TURKEY '16 into EUR-TURKEY '17: Target 42, stop loss 30.
• Switch out of RUSSIA '42 into RUSSIA '22 (cash): Target 3.8, stop loss 0.8.

Conclusion

The document outlines a strategic approach to emerging market assets, focusing on FX, local debt, and credit risk. Opportunities are identified in the cash market, particularly in South Africa, Poland, and Hungary. The recommendations include buying certain bonds and currency spreads, as well as tail-risk hedges. Key risk events and market developments are highlighted, with a focus on upcoming data releases and central bank decisions.