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FX & IR EM STRATEGY Summary

Core Content

This document provides an overview of foreign investment flows and foreign bond ownership in Emerging Markets (EM) across Asia, CEEMEA, and LATAM as of 4 November 2013. It also includes insights into FX reserve accumulation and market dynamics, particularly in relation to upcoming rate decisions and investor behavior.

Main Points

EM Bond Flows

• Overall EM bond flows: Net redemptions of USD 0.6bn in the week to 30 October 2013. Local currency bond funds saw outflows of USD 0.34bn, while hard currency EM bond funds experienced significant redemptions and coupon payments.
• Asia bond inflows: Inflows to Asian local currency government bonds (excluding Korea) are now positive year-to-date. Foreigners own more Asian bonds now than in Dec 2012, despite overall EM fixed income outflows.
• TRY bonds: Non-residents' demand for Turkish Lira (TRY) bonds recovered, reversing prior outflows.
• Hungary: Non-resident outflows exceeded prior inflows, indicating a negative trend.
• South Africa: Non-resident flows are more balanced and on the positive side.
• Mexico: Net outflow of MXN 3.45bn during the week of Oct 16–22, likely due to profit-taking before the Banxico rate decision. The easing premium dropped from 40bps to 35bps, and the expected cut was 25bps.

Equity Flows

• Equity inflows to Korea had a 44-day streak, which was broken in October.
• Inflows to other Asian markets decelerated.
• Weekly equity flows are detailed in charts, showing varying trends across different markets.

FX Reserve Accumulation

• FX reserve changes are reported for Asia, CEEMEA, and LATAM, with monthly and 3-month moving average data.
• These reserves are influenced by both inflows and outflows, with the data adjusted for valuation effects and forward contracts where available.

Key Information

Asia Bond Flows

• Indonesia: Record weekly and monthly bond inflows of USD 800mn and USD 2.1bn, respectively. Foreign ownership of IDR government bonds increased to 32.3% in October.
• Malaysia: Largest monthly inflow of USD 4.95bn in September, primarily from BNM notes. Foreign ownership of MGS increased slightly to 42.9%.
• Korea: Equity inflows turned positive in September, and foreign ownership of government bonds increased.
• Thailand: Foreign ownership of government bonds increased, but data does not capture flows to BOT bills and corporate bonds.
• Philippines: Government bond ownership is reported, but no breakdown between bonds and equities.

CEEMEA Bond Flows

• Turkey: Non-resident demand for TRY bonds recovered.
• Hungary: Non-resident outflows exceeded inflows.
• South Africa: Non-resident flows are more balanced and positive.

LATAM Bond Flows

• Mexico: Net outflow of MXN 3.45bn due to profit-taking before the Banxico rate decision.
• Brazil: Foreign bond holdings and monthly flows are reported, but details on specific bond types are limited.
• Colombia: Monthly foreign bond flows are detailed, with data sourced from local authorities and Bloomberg.

Data Sources and Notes

• Equity flows: Data sourced from local stock exchanges and Bloomberg.
• Bond flows: Data sourced from various central banks and financial institutions, with caveats regarding coverage and methodology.
• FX reserves: Data includes adjustments for valuation effects and forward contracts, with monthly and 3-month moving average trends.

Important Disclosures

• The document is a marketing communication and not independent investment research.
• It may be subject to conflicts of interest due to interactions with sales and trading teams.
• No liability is accepted for any loss arising from the use of this report.
• No guarantee of accuracy, completeness, or timeliness of the information.
• No offer or solicitation to buy or sell any securities.
• Non-independent research and approved for distribution in specific regions, including the UK, France, Germany, Japan, Hong Kong, Australia, and Singapore.

Contacts

Distribution and Legal Information

• Diana Seifert is the contact for distribution in the UK.
• The document is non-independent research and not subject to legal independence requirements.
• BNP Paribas is incorporated in France and operates under various regulatory bodies in different regions.
• The report is intended for professional clients only and not for retail clients in certain regions of the European Economic Area.