20171013-法国巴黎银行-EM_STRATEGY_PLUS_26页_1mb

EM Strategy | Global Weekly EM Strategy Plus - 13 October 2017

Core Content Summary

This document outlines the emerging markets (EM) strategy recommendations and market analysis for the week of 13 October 2017, produced by the EM Strategy Team at BNP Paribas across various branches and subsidiaries.

Main Themes and Analysis

South Africa: October medium-term budget jitters set to build

• The South African government is expected to face significant challenges in the upcoming medium-term budget policy statement (MTBPS) on 25 October.
• Softening growth, inflation, and revenue collections, along with weakened institutional capacity and burdensome state-owned enterprises (SOEs), are likely to delay fiscal consolidation.
• The budget deficit is projected to increase to 4.1% of GDP in FY17/18, up from the previously estimated 3.3%.
• A cumulative revenue undershoot of ZAR 75bn over the next three financial years is anticipated.
• Despite this, the South African Reserve Bank (SARB) is expected to cut rates three more times this year, potentially leading to credit rating downgrades by mid-2018.

Brazil: Introducing the real rates and breakeven model

• A new framework was introduced to model real rates and implied breakeven inflation, alongside existing models for nominal rates.
• Real rates are unlikely to see significant movement until breakeven inflation converges to a lower level.
• The model's backtesting results show strong performance with hit ratios exceeding 80% and average returns of +55bp for real rates and breakeven inflation.

Latam FX Quarterly: FEER model values update

• The Brazilian Real (BRL) is identified as the currency with the most potential for appreciation in the region.
• Long-term estimates suggest USDMXN will be around 17.50, with COP and ARS expected to depreciate against the USD.

Chile: AFPs relocation into equities = CLP rates to the upside

• An increase in AFP (Administradoras de Fondos de Pensiones) allocations into equities is expected to benefit the existing 5y CLPxCAM paying position.

Mexico: What to do with our existing hedge?

• The existing hedge is not fundamentally driven but a potential strategy for receiving rate positions in Mexico.

Colombia: Local Debt and Pension Funds Monitor - September 2017

• Non-residents hold 25.7% of Colombian public debt.
• The pension system continues to increase the share of foreign equities.

New Recommendations

Trade Review

Interest Rates

• Receive 2y THB NDIR: 5k USD, 1.33%, 1.38%, 1.00%, 1.50%, -5bp, -25
• Receive EUR/CZK 2y2y FWD: 10k USD, 117bp, 117bp, 100bp, 125bp, 0bp, 0
• Pay 1y2y TRY xccy steepener: 10k USD, -44bp, -45bp, 0bp, -60bp, -18bp, -180
• Receive 2y2y fwd ZAR: 10k USD, 7.38%, 7.48%, 6.80%, 7.60%, -14bp, -140
• Pay 5Y CNY NDIRS: 10k USD, 3.80%, 3.83%, 4.15%, 3.60%, -4bp, -40
• Receive 18m TIIE: 15k USD, 7.25%, 7.34%, 6.50%, 7.80%, -9 bp, -127
• Receive Brazil DI Jan-23 spread over US swap: 8k USD, 766, 764, 730, 800, +2 bp, 19
• Receive Brazil DI Jan20sJan21s FRA: 50k USD, 10.60%, 10.56%, 9.75%, 11.45%, +4 bp, 322
• Flattening Chile CLPxCAM 1Y-2Y: 8k USD, 24, 18, 0, 45, +6 bp, 62

FX

• Sell 3m EURINR: USD 10mn, 78.54, 78.13, 76, 79.6, 0.52%, 52
• Sell 3m USDCNY NDF (rolled into fresh 3m): USD 20mn, 6.9586, 6.585, 6.2, 6.8, 5.67%, 1134
• Sell 3m ZAR vs. TRY: USD 15mn, 3.70, 3.66, 3.88, 3.55, -0.98%, -148
• Short USDCOP via 3m NDF: USD 8mn, 2,971, 2,967, 2,820, 3,080, 0.14%, 11
• Short USDBRL via 3m NDF: USD 10mn, 3.17, 3.20, 3.00, 3.29, -0.99%, -99
• Short USDARS via 3m NDF: USD 10mn, 18.159, 17.727, 7.0%, -3.5%, 2.43%, 243
• Long BRL against a basket (CLP, EUR & AUD) via 1m NDF: USD 10mn, 192.74/4.018/2.6285, 196.13/3.757/2.4903, 25.00%, 15.00%, 16.19%, 1619
• Long BRL against a basket (CLP, EUR & AUD) via 1m NDF: USD 5mn, 208.46/3.379/2.4005, 196.13/3.757/2.4903, 25.00%, 15.00%, -2.86%, -143

Options

• Buy 3m USDINR ATMF (65.03) put: USD 10m, 1.05%, 0.33%, -0.72%, -72
• Buy at spot 3.55 1m PUT USD/TRY ATMF: USD 10mn, 1.27%, 0.54%, -0.73%, -73
• Buy 1y EURTRY ATM put (spot reference 4.1250 strike 4.64): EUR 10m, 5.30%, 3.60%, -1.70%, -170
• Buy 1y USDHKD call spread (7.70 vs. 7.80, 1X1): USD 100mn, 0.54%, 1.05%, 0.51%, 507
• Long USDMXN OT 20.0 / Mat: 10-Jan-18 (extended): USD 2mn, 30.00%, 42.36%, - | - | 12.36%, 247

Credit

• Buy Turkey '45s (spread over swaps): USD 5mn, 344 bp, 331 bp, 300 bp, 370 bp, 13 bp, 85
• Long Bocan (Badlar linked) March 2018: USD 5mn, 102.00, 103.30, 7%, -4%, 0.35%, 18

What's Up Next Week?

Asia

• China: The 19th National Party Congress starts on 18 October. No significant event risk is expected.
• Indonesia and South Korea: Central bank meetings on 19 October. Both are likely to keep rates on hold.
• Philippines and China: Will release GDP, industrial production, and retail sales data on 19 October.
• Malaysia and Singapore: Will celebrate Deepavali on 16 and 17 October, respectively.

CEEMEA

• South Africa: CPI data on 18 October. Inflation is expected to rise to 4.9% y/y in September.
• Poland: Trade numbers on 16 October. Current account deficit is forecasted to widen to EUR 850mn in August.

Latam

• Chile: Policy rate decision on 19 October. The BCCh is expected to keep rates on hold.
• Brazil: Mid-month CPI release on 20 October, which should confirm inflation has bottomed out and is converging towards 3%.

Key Takeaways

• South Africa: Budget deficit is expected to rise to 4.1% of GDP, with potential credit rating downgrades.
• Brazil: Real rates and breakeven inflation models are now part of the analytical framework, showing strong backtesting results.
• Latam: BRL is seen as the most appreciating currency, while COP and ARS are expected to depreciate.
• FX and Options: Multiple trades are recommended across various currencies and instruments, with a focus on hedging and capitalizing on rate differentials.
• Credit: Turkey and Chile are highlighted with specific credit recommendations.