20161118-法国巴黎银行-EM_Strategy_Plus_30页_4mb

EM Strategy Summary - Global Weekly (18 November 2016)

Core Content

This document outlines the current outlook and trade recommendations for Emerging Market (EM) assets, focusing on credit, interest rates, and foreign exchange (FX) markets. It is produced by BNP Paribas and several regional strategists across different branches.

Main Themes

Global EM Credit: Lower but Slower

• The US election has led to a marked underperformance in EM credit, both in terms of returns and spreads.
• With US rates expected to widen in the short term, EM credit spreads are likely to continue widening.
• Recommendation: Buy protection on CDX EM at 92.2 with a target of 90. A CDX EM short against CDX IG or Main is also attractive.
• EM credit is expected to end the year with a total return of around 6.5%, with a yield of around 6.5% and more than 420bp spread.
• High-spread and high-beta names are expected to be the worst-affected during rate hikes, while low-spread and high-rated names in the GCC and CEE will see the least negative performance.

Asia: Dip a Toe – Receive 1y1y KRW IRS

• The current re-pricing in global rates makes the front end of the Korean IRS curve attractive.
• Recommendation: Receive 1y1y KRW IRS at 1.6%, targeting 1.4%.

CEEMEA: Dollar Rules

• EM risk premium is rising, especially in CEE.
• The USD is strong, and it is too early to turn positive.
• Recommendation: Buy Turkey 5y CDS at 295bp, targeting 320bp.

Latam: Regional Outlook

• Mexico: Banxico raised rates by 50bp, less than expected, to prevent second-round effects. The short end of the TIIE curve has become too expensive.
  • Recommendation: Receive 1y1y TIIE at 7.05%, targeting 6.80%.
• Chile: Paying 3y CLPxCAM is recommended due to higher premium in EM relative to US.
  • Recommendation: Pay 3y CLPxCAM at 3.69%, targeting 4.15%.
• Colombia: Receive 3y IBR is advised, though allocation is smaller due to higher risk premium.
  • Recommendation: Receive 3y IBR at 6.22%, targeting 5.75%.
• Brazil: The central bank is expected to cut rates by 25bp. The NTN-B real rate trade has been closed.
  • Recommendation: Receive 1y1y USDCLP via NDF, targeting 678.00.

Key Recommendations

Key Events and Outlook

Asia

• Malaysia: Central bank meeting on 23 November, likely to keep rates on hold.
• Thailand: Q3 GDP data on 21 November.
• China: Expected to implement further capital flow controls due to volatility in FX and fixed income markets.

CEEMEA

• Hungary: Central bank meeting on 22 November, expected to keep policy rate at 0.90%.
• Poland: Industrial production, retail sales, and PPI data on 21 November.
• South Africa: CPI and PPI data on 23 and 24 November respectively.
• Turkey: Economy Coordination Committee meeting on 18 November, expected to discuss measures to counter TRY depreciation. CBRT is unlikely to hike the ON rate and may instead increase liquidity measures.
• CBRT: Expected to hike the 1-week repo rate by 25bp to 7.75%, but keep the ON rate at 8.25%.

Latam

• Brazil: Mid-month inflation release on 23 November, with the DI curve pricing in a 25bp cut.
• Mexico: Banxico raised rates by 50bp, and the short end of the TIIE curve is too expensive.
• Colombia: Policy rates are expected to remain unchanged, with the central bank focusing on FX performance.
• Chile: FX strategy team expects USDCLP to rise, and the 3y CLPxCAM payer trade has been closed.

Additional Notes

• The document includes several charts and data points, highlighting the performance of EM credit, FX, and interest rate instruments.
• It emphasizes the importance of ETF holdings in EM credit and how they can impact liquidity and price movements.
• The performance of EM credit is expected to be positive in 2017 due to sufficient returns and cash buffers from the recent sell-off.
• The commodity outlook remains unclear, with no clear direction on the performance of commodity exporters.

Conclusion

The document provides a comprehensive analysis of EM markets, with a focus on the impact of the US election on global liquidity and EM credit spreads. It recommends specific trades in credit, interest rates, and FX, with a view towards managing risk and capitalizing on market movements. The outlook for EM credit is cautiously optimistic, with the expectation of a slower pace of sell-off in the coming months.