20160902-法国巴黎银行-EM_Strategy_Plus_24页_3mb

EM Strategy Plus Summary

Core Content

This document outlines the current state of Emerging Market (EM) assets and strategies, focusing on the impact of US economic indicators and monetary policy on EM markets. It also discusses the leverage dynamics in China's capital markets and the implications of a regime shift in SGD-USD spreads.

Main Themes and Key Information

1. US Non-Farm Payroll (NFP) and EM Market Reactions

• A strong NFP number for August could shift market attention to the September FOMC meeting.
• A significant sell-off in EM is expected only if the long end of the US real yield curve rises.
• EM currencies have already corrected towards their moving averages due to increased expectations of US rate hikes.
• EM assets are currently supported by a slowing economy, low CPI, ample liquidity, and the absence of alternative yield-bearing assets.

2. China: Leverage in Capital Markets

• High leverage in China's capital markets poses a risk of bubbles and systemic stress.
• Chinese regulators have introduced deleveraging measures, which are positive for the bond market.
• The bond market is primarily funded by the money market, with O/N repo dominating.
• The PBoC has used 14D reverse repo to inject liquidity, aiming to control leverage without causing sharp rate increases.
• The leverage ratio in the China bond market is below 30%, with interbank market leverage at around 10% and exchange market leverage at around 30%.

3. Singapore: Regime Shift in SGD-USD Spreads

• The correlation between USDSGD spot and FX forwards has broken down, signaling a change in the dynamics of SGD FX and rates.
• The compression trade between SGD and USD rates is no longer threatened by a bearish run in the currency.

4. CEEMEA: Entry Opportunity for High Yielders

• In South Africa, a strong NFP number could limit USD/CEEMEA strength, offering a good entry point for CEEMEA FX.
• Recommendation to short USDZAR on any move to 14.80, targeting 14.0.
• Q2 2016 GDP data and manufacturing production data are key for monitoring EM performance.

5. Mexico: Limited Appreciation

• Despite a strong NFP number, the MXN has not appreciated significantly, suggesting that the appreciation will take longer than expected.
• The current dynamics of the MXN are not supportive of a sharp rise.

6. Chile: Financial Situation of Coldelco

• The Chilean copper giant Coldelco is likely to require financial support from the central government.
• The market price of 5y CLPxCAM is below the model's fair value, indicating a potential paying opportunity.

New Recommendations

What's Up Next Week?

Asia

• G20 Summit in Hangzhou: Monitor for global monetary policy coordination and RMB liberalisation.
• Monetary Policy Committee Meetings: Malaysia and South Korea will meet; South Korea is expected to hold rates, while there is a small chance of a rate cut in Malaysia.
• Key Data: China's FX reserve reports and local central bank data.

CEEMEA

• Hungary: Focus on CPI inflation, expected to rise from -0.3% to 0.1%.
• Poland: Monitor MPC meeting; recommend switching from Poland $ bonds into Hungary.
• South Africa: Watch Q2 2016 GDP data and manufacturing production data.
• Turkey: Monitor August inflation and July current account balance.
• Russia: Expect August inflation to drop, potentially leading to a 50bp rate cut.

Latam

• Brazil: Monitor COPOM minutes and August inflation; recommend 5y IBR swap receivers.
• Colombia: Watch CPI data for August; recommend 5y IBR swap receivers.
• Mexico: Monitor August inflation and consider entry points for UDIBonos.

Key Takeaways

• The overall leverage ratio in China's bond market is below 30%.
• Chinese commercial banks dominate bond market investments with a market share of around 63%.
• Leverage ratios for some financial institutions are quite high, especially those using off-balance sheet WMPs and classified tranche products.
• The PBoC has implemented measures to control leverage and is exploring an "interest rate corridor" mechanism to stabilize money market liquidity.
• The shift in SGD-USD spreads suggests a change in the dynamics of the currency and rates relationship.

Charts and Data

• Chart 1: Solid NFP number would trigger a correction in EM.
• Chart 2: EM performance is more influenced by future real rate expectations.
• Chart 3: Leverage ratio of different investors in the China bond market.
• Chart 4: Interbank O/N and 7d repo rates.
• Chart 5: Repo trading volume in 2015.
• Chart 6: Monthly repo trading volume.
• Chart 7: Historical yield of 10y CGB.
• Chart 8: Wealth Management Products (WMPs) in China.