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EM STRATEGY DAILY SUMMARY - 12 June 2018

Core Content

This document is a daily market update from BNP Paribas Emerging Markets Strategy team, providing insights into current economic and financial market conditions in Emerging Markets (EM), Latin America (Latam), and Asia. It highlights key developments, market outlook, and strategic views from various regional experts.

Key Market Developments

• Asia:

  • Asian equity markets are mixed, with Hang Seng and Shanghai Shenzhen indices showing positive movement following the conclusion of a four-hour summit between US President Trump and North Korean leader Kim Jong Un.
  • The photo of the signed agreement revealed President Trump's pledge to provide unspecified "security guarantees" to Kim in exchange for his "unwavering commitment to complete denuclearization of the Korean peninsula."
  • India is expected to report May inflation at 4.1% y/y, with a temporary deceleration. April industrial production is also expected to show improvement.
  • South Korea's Bank of Korea (BOK) Governor Lee stated that the central bank will keep policy accommodative, noting that demand-side inflationary pressure remains low.

• Latin America:

  • In Argentina, the central bank (BCRA) is expected to remain on hold at today's meeting. Despite cumulative rate hikes of almost 1,300 basis points, the current situation is seen as fragile, and the BCRA is likely to keep the policy rate high in the near term due to rising inflation expectations.
  • Brazilian assets are in a repricing mode due to local and external factors, including a smaller appetite for EM assets and deteriorating investor sentiment. The BRL has depreciated 15% since March, and the yield curve has steepened. The BCB and National Treasury are working to ensure market liquidity and functionality.

• Emerging Markets Outlook:

  • The EM portfolio flows model suggests that EM flows should return to the positive side in the coming months. A conditional projection points to up to USD 50.2bn in flows over the next three months (equity and debt combined).
  • The outlook is supportive for the EM asset class, though differentiation among countries and assets is expected to continue.

Key Contacts

Legal and Regulatory Information

• This document is non-independent research and is intended for Relevant Persons as defined under MiFID II.
• It does not constitute investment research and is not subject to any prohibition on dealing ahead.
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Additional Disclosures

• Options and ETFs:
  • Options are complex and may not be suitable for all investors.
  • ETFs involve risks including tracking error, currency, and geopolitical risks.
  • BNPP may have conflicts of interest and may act as a market maker or Authorized Participant in ETFs.
• U.S. Disclosures:
  • Some securities may not be registered under US Securities Laws and are considered restricted.
  • The report may be distributed only to specific investors, such as institutional investors.
  • BNPPSC is a registered broker-dealer in the U.S.
• International Disclosures:
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Summary

The document outlines the current state of EM and Latam markets, with a focus on the impact of geopolitical events, central bank policies, and economic indicators. It provides strategic views from regional experts and highlights the expected return of positive flows to EM assets. The legal and regulatory framework is detailed, emphasizing the non-independent nature of the research and the potential for conflicts of interest. The document is intended for professional clients and is not a public offering or investment advice.