巴黎银行-新兴市场-宏观策略-新兴市场：着眼于系统因素，展望未来-20190624-9页_470kb

EM Strategy Summary

Core Content

This document outlines the current strategy and analysis for Emerging Markets (EM) assets, focusing on the impact of systemic factors on EM local currency rates and sovereign credit. The analysis is based on Principal Component Analysis (PCA), which helps identify the common latent factors driving the variability in these markets.

The key insight is that EM assets have been influenced significantly by global systemic factors, with the first two common latent factors explaining over 80% of the weekly variability in local currency rates and over 89% in sovereign credit. The strategy emphasizes a bullish outlook for EM, supported by the expectation of structurally lower real interest rates in the US and Europe.

Main Strategies in Place

• Long EM currencies against USD and EUR: Positions include long CZK, PLN, BRL, HUF, CLP, and COP.
• Flattening in Brazil and Mexico: Positions in Brazil (DI Jan-22sJuly20s and Jan-21sJan-25s) and Mexico (TIIE5y10s) with a total allocation of USD35,000 DV01 and USD25,000 DV01 respectively.
• Local currency swaps: Used to receive 10y rates in the Czech Republic and 2y rates in Mexico, with a total allocation of USD25,000 DV01.
• Tactical local currency rate paying: Positions in Colombia (5y IBR) and Chile (1y CLPxCAM) with a total allocation of USD22,000 DV01.
• Sell protection: CDS positions in Russia (USD40mn) and Turkey (USD13mn).

Principal Component Analysis (PCA) for EM Sovereign Credit

• Systemic dominance: The first two common latent factors explain 89.6% of the variability in EM sovereign credit, with a notable increase in explanatory power compared to previous periods.
• Key drivers: US corporate credit, 2-year real rates, and US and European 5y and 10y rates are the most important explanatory variables.
• Country-specific idiosyncratic factors: Turkey shows the highest idiosyncratic component, while other countries like Brazil, Mexico, and Colombia exhibit strong co-variance with US corporate credit and real rates.
• Explanatory power: The BNPP political risk index has increased in explanatory power for Turkey, showing its unique influence.

Financial Transmission Mechanism

• Real vs. nominal rates: Real interest rates are more significant in determining EM currency movements and financial flows, especially in the medium and long-term.
• US long-term yields: A 100bp increase in the US 10-year yield typically leads to an 80bp increase in other bond markets, suggesting a stronger impact of long-term rates than short-term ones.
• Global liquidity and US financial conditions: These remain supportive for EM local currency rates, despite short-term risks from trade tensions and dollar strength.

EM Local Currency Rates Analysis

• Systemic risk: Over the past months, the first common latent factor has explained almost 80% of the variability in EM local currency rates.
• Key drivers: US and EUR 5y swap rates, US 1y1y forward rates, and 5y5y real rates are among the top explanatory variables.
• Resilience to USD strength: EMs have shown resilience to the long US dollar cycle, and a weaker USD is expected to benefit EM through increased cross-border lending and higher commodity prices.

Key Observations

• Synchronised movement: EM assets generally move in sync, driven by systemic factors, with some countries like Turkey showing more idiosyncratic behavior.
• Bullish outlook: The strategy reinforces a bullish stance for EM due to the expectation of lower real rates in the US and Europe, which should support EM assets.
• Contagion risk: While the US dollar remains a risk factor, the current supportive global liquidity environment mitigates some of the potential negative impacts.

Thematic Publications

• EM: Fed insurance, EM endurance: Discusses the role of the Fed in EM resilience.
• EM Flows: Slight reversal in May: Highlights changes in EM capital flows.
• EM Strategy: Understanding the transmission channels on local yields: Explains how global factors influence local yields.
• Link to Q3 2018 piece: "EM Strategy: The worst is over" reinforces the bullish view.

Conclusion

The strategy is based on the identification of key systemic factors influencing EM assets, with a focus on the US and European interest rates, corporate credit, and real rates. The analysis supports a continued bullish outlook for EM, given the expected structural decline in real interest rates in the US and Europe, and the low systemic risk environment. The positions reflect a diversified approach to capturing the opportunities in EM local currency and sovereign credit markets.