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EM STRATEGY | DAILY - 23 April 2018 Summary

Core Content Overview

This document outlines the emerging markets (EM) strategy and market outlook for the week of 23 April 2018, focusing on central bank meetings, market trends, and specific investment recommendations. It is produced by BNP Paribas Global Markets Research teams and includes legal disclaimers and disclosures relevant to different jurisdictions.

Key Market Events and Outlook

Central Bank Meetings

• Russia (CBR): Expected to keep policy rates on hold on Friday (27 April), in line with consensus. The market has shifted from expecting rate cuts to potential hikes due to rouble depreciation and geopolitical tensions. However, inflation is below target, and the central bank is likely to take a 'wait-and-see' approach.
• Turkey (CBRT): Expected to raise the Late Liquidity Window (LLW) by 50 basis points on Wednesday (25 April), bringing the LLW rate and average repo funding rate to 13.25%. This move is anticipated due to deteriorating inflation outlook and lira depreciation. The strategy recommends buying 10y local bonds, FX unhedged, as a result.
• Hungary (MNB): Policy rates are expected to remain steady at 0.9% on Tuesday (24 April), as they have since 2016. The central bank is likely to maintain the current stance unless there is a significant change in the EUR/HUF spread.
• Colombia: Expected to cut policy rates by 25 basis points on Friday (27 April), bringing the rate to 4.25%. This is supported by inflation nearing target, improved economic activity, and a stronger Colombian peso (COP). The strategy has shifted to a neutral stance on COP and remains with a 9m versus 18m flattener in IBR and a 5y payer in relative value against Mexican THIE.

Asia Market Outlook

• The economic calendar in Asia is relatively light with no central bank meetings or major political events.
• South Korea will release 1Q GDP figures on Thursday (26 April). The Bank of Korea forecasts 3% GDP for 2018, and the risk of a rate hike has eased after two revisions to the CPI outlook.
• Singapore will publish CPI figures on Monday. These are not expected to move the market significantly as the April monetary policy meeting has already occurred.

India

• The strategy recommends taking profit on the INR 5Y NDOIS payer, with the price close to the target of 7%.
• The Indian bond market remains under pressure, and the monetary policy has shifted towards a tightening bias. The sharp increase in rate volatility may be a concern for the Reserve Bank of India (RBI).

Investment Strategy Highlights

• Turkey: Buy 10y local bonds, FX unhedged, following the expected rate hike.
• Colombia: Shifted to a neutral stance on COP and maintains a 9m versus 18m flattener in IBR and a 5y payer in relative value against Mexican THIE.
• Mexico: Recommended receiving 1y1y TIIE based on the expectation of a rate cut in H2 2018 and the high premium in the short-end of the IRS curve.

Other Recent Publications

• Argentina: A PPP programme is expected to help lift investment.

Contact Information

Legal and Regulatory Information

• This document is non-independent research and may be subject to conflicts of interest.
• It is intended for Relevant Persons as defined by MiFID II and is not investment research.
• BNP Paribas may make a market in, or act as a principal or agent for, the securities mentioned.
• The document may include performance data based on back-testing, which is for illustrative purposes only.
• ETFs and convertible securities are subject to specific disclosures and may not be registered under US securities laws.
• United States Disclosures include important information about options, ETFs, and the nature of the report as a general solicitation of derivatives business.
• UK and France disclosures specify that the document is for professional clients and that it is produced and distributed under relevant regulatory frameworks.

Additional Resources

• Online: BNP Paribas Global Markets Website and Strategy Website.
• Bloomberg: Fixed Income Research (BPFR), Emerging Markets Research (BPFR), G10 Interest Rate Research (BPBS), and Market Economics (BPEC).

Conclusion

The document provides a comprehensive view of EM market dynamics, central bank decisions, and investment strategies for the week. It highlights the expected rate movements in Turkey, Russia, Hungary, and Colombia, and offers strategic insights for various currencies and bonds. The legal disclaimers emphasize the non-independent nature of the research and the importance of understanding the risks and regulatory considerations before making any investment decisions.