德银-新兴市场-宏观经济-新兴市场宏观经济与策略聚集-20170922-EM_Macro_and_Strategy_Focus-Deutsche_Bank_24页_1mb

EM Macro and Strategy Focus Summary (22 September 2017)

Core Content

This document provides an in-depth analysis of Emerging Markets (EM) macroeconomic trends, currency strategies, and credit opportunities as of 22 September 2017. It includes insights from various regional economies and highlights key trade recommendations for investors.

Main Views

Economic Outlook

• Asia:

  • The Central Bank of Sri Lanka (CBSL) is expected to hike its policy rate by 25bps to stabilize the economy and reduce inflation.
  • The Bank of Thailand (BoT) will likely keep rates unchanged, despite risks to growth that may affect the rate outlook.
  • Vietnam is expected to report stronger GDP growth of 6.8% YoY in Q3, supported by budget disbursements, FDI, and credit growth.
  • South Korea's CPI inflation is forecasted to rise to 2.9% in September due to demand increases ahead of the Chuseok holidays.
  • Singapore's CPI inflation is expected to remain steady at 0.6% YoY in August, while industrial production growth is projected to moderate.

• EMEA:

  • The Czech National Bank (CNB) may hike rates if inflation or currency appreciation does not meet expectations, though a rate decision is more likely to occur in November.
  • The Polish Central Bank (NBP) is expected to maintain the current inflation rate, with CPI likely to accelerate to 1.9% YoY in September.
  • The Egyptian Central Bank (CBE) will keep rates unchanged at the September 28 meeting, citing a stable inflation environment and no major economic shocks.

• LatAm:

  • Brazil will release inflation and fiscal data, with a small current account deficit and large foreign investment inflows expected.
  • Colombia's Central Bank (BanRep) is expected to debate between pausing or easing monetary policy, with a 25bp rate cut likely, though the decision is expected to be closely divided.
  • Mexico's Banco de México (Banxico) is expected to keep the overnight rate unchanged, as the easing cycle is over.
  • Peru is expected to see a slowdown in CPI growth due to a fading agricultural supply shock and reduced international fuel price gaps.

Currency Strategy (FX)

• USD weakness is the main determinant of EM FX performance.
• Long positions are recommended for BRL and RUB, supported by BoP, real rates, and economic upturns.
• TRY is sensitive to USD strength, and CBT is expected to anchor TRY longs.
• MXN is expected to retrace its recent selloff due to limited economic impact from the earthquake.
• CLP is overvalued and should be kept as funding.
• FX Trades:
  • Poland: Short EUR/PLN
  • Russia: Short CAD/RUB, Buy 2m USD/RUB putspread
  • Czech Republic: Buy 2m EURCZK call
  • Brazil: Long BRL/CLP
  • Mexico: Short USD/MXN
  • Peru: Buy Soberanos 24s

Interest Rate Strategy (Rates)

• Recommended Receiving Positions:

  • Brazil: Jan19|Jan20, 3Y3Y TIIE (with 10Y as a hedge)
  • Colombia: 1Y2Y IBR and Coltes 20s
  • Poland: Receive 2Y2Y IRS
  • Russia: Long Aug-21
  • Israel: SYSY IRS vs USD
  • Czech Republic: Long 10Y bonds vs Bunds
  • South Africa: Be long R2040 vs 10Y IRS
  • Chile: Pay 1Y1Y vs 1Y5Y
  • Mexico: Receive TIIE 3Y3Y

• Key Notes:

  • Rates are favored where positioning is lighter and monetary dynamics are most favorable.
  • A neutral stance is recommended overall in credit.
  • Curve flatteners and higher carry/beta sovereigns are recommended in credit.

Credit Strategy

• Investors should remain cautious until core rates settle.
• High-yielders with improving macro conditions, such as Argentina and Ukraine, are expected to outperform.
• Recommended Credit Trades:
  • Argentina: 46s vs 27s
  • Brazil: PETBRA 26s vs 23s
  • Mexico: Pemex 27s vs UMS 27s
  • Turkey: Long 24s vs 5Y CDS

Key Information

• Total EM Debt at Historical Highs: This is a critical factor affecting investor sentiment and positioning.
• Economic Releases: Key dates include the CBSL meeting (25 September), BoT meeting (25 September), and various CPI and GDP data points across regions.
• Trade Tracker: A complete list of trades is available at the Trade Tracker.
• Analysts: The report is authored by a team of strategists and economists, including Drausio Giacomelli, Jed Evans, Sebastian Brown, and others.

Summary Table of Key Trades

Conclusion

The report highlights a cautious yet constructive outlook for EM markets, emphasizing the importance of domestic fundamentals, real rates, and curve trades. FX and rate strategies are recommended based on economic data and policy expectations, with a focus on long positions in BRL, RUB, and USD/BRL DNT. Credit opportunities are also identified, particularly in Argentina and Brazil, with a recommendation to participate in PETBRA tender offers and engage in curve flatteners. Overall, the market environment remains neutral, with a preference for higher real rates and strategic positioning in the face of potential USD strength.