20170314-法国巴黎银行-EM_STRATEGY_PLUS_35页_4mb

EM Strategy Plus Summary

Core Content

This report from BNP Paribas outlines the current outlook for Emerging Markets (EM) assets and strategies for the next two years, with a focus on global monetary policy, FX dynamics, and credit opportunities.

Main Views

G7 Rates and EM

• The G7 is expected to adopt less accommodative monetary policy, with the ECB likely to change forward guidance in June and increase deposit rates in September. The Fed is anticipated to raise rates three times this year, starting next week, and further four times in 2018.
• Higher G7 yields and US fiscal easing may challenge EM over the next two years.
• For now, EM assets are expected to hold up due to high carry differentials, better external balances, and strong global growth, particularly in China.

Global EM Credit

• The next CDS roll is expected to be tighter and steeper, with Turkey and Argentina rolls seen as attractive for selling.
• The CDX EM versus CDX IG ratio is retained as a recommendation.
• Basis trades are advised with caution due to current expensive levels.

Asia: FX Manipulation

• North Asian central banks are adopting a more hands-off approach to FX management, avoiding the "currency manipulator" label.
• Thailand continues with traditional FX intervention.
• China's FX reserves increased unexpectedly in February, indicating efforts to curb outflows and encourage repatriation.
• The next currency manipulation report is expected in April, and no announcements will be made before that.

CEEMEA: Reflation Test

• The reflation trade is expected to be tested, with EM potentially better prepared than in 2014.
• EM carry differentials remain strong, and external balances have improved.

Latam: Currency and Credit Strategy

• In Colombia, the COP is considered undervalued relative to fundamentals and the peso's recent performance.
• Chile's Central Bank is expected to cut policy rates by 25bp due to weak economic data.
• Brazil will focus on the rollover of USD 9.7bn in FX swaps maturing in April 2017, impacting the BRL.

Key Recommendations

FX Strategies

• Long COP against a basket (EUR & CLP) via 1m NDF: New recommendation with an entry level of 3170/4.524.
• Long USDARS 2y NDF against short USDARS 1y NDF: Existing position with a target of 6% and stop of 17.5%.
• Short USDMXN via Mar-18 FWD: New position with a target of 21.4 and stop of 20.73.
• Sell 3m SGDCNH outright: Existing position with a target of 5 and stop of 4.7.

Interest Rates Strategies

• Receive 2Y1Y TH IRS: Added to position with an entry level of 2.24% and a target of 2.00%.
• Pay 1Y1Y RUB XCCY: Existing position with an entry level of 7.23% and a target of 6.67%.
• Receive 5Y AUD IRS vs. pay 5Y KRW IRS: Existing position with an entry level of 0.96% and a target of 1.10%.
• Flattening Colombia IBR 1y-3y: Existing position with a target of 25.00% and stop of 15.00%.
• Flattening Brazil DI Jan18sJan20s: Existing position with a target of 25.00% and stop of 15.00%.

Credit Strategies

• Switch from Saudi Arabia $ '46s into Qatar $ '46s: Existing position with an entry level of -16 bp and a target of 0 bp.
• Long USDMXN PS k=20.55/19.75: New position with a target of 19.4% and stop of 18.91%.

Key Information

• The report highlights the importance of carry differentials, external balances, and global growth in supporting EM assets.
• The reflation trade is expected to face challenges due to rising G7 rates and EM debt levels.
• China's RMB internationalisation remains a key policy goal, though progress has been slow and the CNH market is still a conduit for capital outflows.
• FX reserve changes are a key indicator of market intervention, with mixed trends across Asia.
• The report includes various charts and data sources to support its analysis.

Summary Table

Conclusion

The report suggests that while EM faces challenges from tighter G7 monetary policy and high speculative positioning, the current support from carry differentials, external balances, and global growth may help EM assets hold up in the short term. However, the long-term outlook depends on the sustainability of these factors and the response of EM economies to rising interest rates and potential reflation pressures.