20180627-法国巴黎银行-LATAM_FX_QUARTERLY_FEER_MODEL_UPDATE_9页_399kb

LATIN AMERICA FX Strategy Summary

Core Content

This document provides a quarterly update on the FEER (Fundamental Equilibrium Exchange Rate) model, used by Banco BNP Paribas Brasil S.A. to assess long-term FX valuation trends in Latin America. The FEER model assumes that the nominal FX rate is the mechanism through which a country's current account adjusts to sustainable levels in the medium to long term. The report highlights the convergence of currencies toward internal and external equilibrium and includes updated FEER estimates for several Latin American countries.

Main Points

• FEER Model Overview:
  The FEER model is considered the most robust among alternative valuation approaches, as it explains the role of exchange rates in open economies rather than merely fitting statistical models. It functions as a long-term guide, not a short-term trading tool.

• Country-Specific Analysis:
  The report provides updated FEER estimates for Brazil, Mexico, Colombia, Chile, Peru, and Argentina based on the Q1 2018 balance of payments data.

• Key Findings:

  • Brazil (BRL): The BRL has the highest margin for structural appreciation. The theoretical FEER is 3.03, which is -20.6% below the current market price.
  • Mexico (MXN): The USD/MXN FEER has adjusted further to the downside, indicating that the peso is still undervalued. The theoretical FEER is 17.45, -12.5% below the current market price.
  • Colombia (COP): The USDCOP FEER is in line with market values, reflecting recent improvements in the country's terms of trade.
  • Chile (CLP): The USDCLP FEER has also moved downward, showing that the peso is undervalued. The theoretical FEER is 556, -13.5% below the current market price.
  • Peru (PEN): The USDPEN FEER is slightly below the market price, with a -6.2% change.
  • Argentina (ARS): The USDARS FEER has moved upward, now at 28.90, which is 6.7% above the current market price. The model shows strong predictive power for the peso over the next 1-2 quarters. The official projection for Q4 2018 is 28.50, but the bias is still to the downside.

• BEER Model Update:
  Short-term FX valuation estimates (BEER) are also included. These are used in conjunction with FEER for a more comprehensive analysis.

Key Information

• The FEER model estimates the theoretical nominal FX rate that would lead to a sustainable current account balance.
• The current account balance and sustainable levels are expressed as a percentage of GDP.
• The model highlights the structural trends in each currency and the potential for appreciation or depreciation.
• The BRL is identified as the currency with the highest potential for appreciation due to its strong external funding capacity and steady FX flows.
• The ARS is expected to depreciate further, with the FEER model predicting a value of 28.90 by the end of the year, despite the official projection of 28.50.
• The FEER model is not intended to be a short-term trading tool but rather a guidance framework for long-term FX valuation. It is combined with other models like BEER for a more nuanced view of currency movements.

Table Summary

Final Comments

• FEER estimates are used as long-term guidance rather than short-term trading signals.
• The model is combined with BEER, technical indicators, and flow monitors for a more comprehensive analysis.
• The current account dynamics in the region are mixed, with Argentina experiencing continued deterioration, while others show improvement.
• The depreciation of the Argentine peso is expected to continue, and the model shows strong predictive power for its movement.
• The document is a marketing communication and not investment research, and it is intended for Professional Clients and Eligible Counterparties.

Legal Notice

• The document is non-independent research and may be subject to conflicts of interest.
• It does not constitute an offer to sell or a solicitation of an offer to buy.
• It is not intended for non-Relevant Persons and may contain hypothetical or back-tested performance data.
• The indicative prices provided are not actual transaction terms and are subject to change.
• BNPP may have financial interests in the securities mentioned and may act as a market maker, advisor, or underwriter.
• The document is confidential and may not be distributed without prior written consent.
• The information is subject to change and is not intended to provide investment advice.

United States Disclosures

• Options and ETFs: The document contains important disclosures about the risks and nature of options and ETFs.
• Restricted Securities: Certain securities may not be registered under U.S. securities laws and are restricted.
• Distribution Restrictions: The document may be distributed only to qualified institutional buyers or non-U.S. persons.
• BNPPSC Authorization: The report is distributed by BNPP Securities Corp. to institutional investors.
• No Guarantee of Performance: Past performance is not indicative of future results, and simulated performance may not reflect real-world factors like liquidity and transaction costs.

Regulatory Information

• The document is subject to legal regulations in various jurisdictions, including the UK Financial Conduct Authority and MiFID II.
• It is not a prospectus and does not provide investment, tax, or legal advice.
• The document is produced by a BNPP group company and is for intended recipients only.