巴黎银行-新兴市场-投资策略-新兴市场：美元资金仍有支撑作用，但幅度不大-20190426-9页_571kb

EM Summary: USD Funding Conditions and XCCY Basis Monitor

Core Content

This report provides an analysis of USD funding conditions in emerging markets (EM) using newly developed XCCY basis indices. It outlines the relationship between cross currency basis, USD liquidity, and dollar cross-border flows, emphasizing the role of USD as the dominant funding currency and how its conditions affect global financial markets.

The report highlights that while USD funding conditions in EM remain supportive overall, there has been a marginal deterioration in certain regions. This is identified through the XCCY basis indices, which are normalized and weighted to reflect current account sizes and economic activity.

Main Points

• USD Funding and Global Liquidity: The USD plays a central role in determining global financial conditions due to its dominance in international markets. Changes in USD funding conditions directly influence EM economies, especially when they involve currency appreciation and economic activity.

• XCCY Basis Monitor: Three new XCCY indices have been developed to assess USD funding conditions in EM regions. These indices are based on a weighted average of normalized XCCY basis spreads, with weights adjusted by current account size and deficit levels. A higher index value indicates looser USD funding conditions, while a lower value suggests tighter conditions.

• Index Construction:

  • Each country's XCCY basis is normalized between 0 and 1, based on the last six months.
  • Weights for different tenors (3m, 6m, 1y, 2y) are 30%, 30%, 30%, and 10%, respectively.
  • Countries with larger current account deficits have higher weights, reflecting increased USD demand.

• Regional Analysis:

  • Latam: USD funding conditions are relatively looser compared to Asia and CEEMEA.
  • Asia and CEEMEA: While not in a state of dollar scarcity, there has been a marginal tightening in USD funding conditions.
  • China: The 6m and 1y XCCY basis swaps are trading near the six-month low, indicating tighter USD funding conditions.

• XCCY Basis and Funding Demand:

  • The XCCY basis swap spread reflects the market's perception of funding stress in foreign currencies.
  • A lower basis spread indicates higher demand for USD funding, as investors are willing to accept lower interest rates for USD-denominated liabilities.
  • The spread is influenced by both credit risk and supply-demand dynamics in cross-border markets.

Key Information

• The XCCY basis monitor is a tool to gauge global liquidity and identify regions where USD funding is scarce.
• The indices do not show any region in EM experiencing tight USD funding conditions, but there is a marginal deterioration in some areas.
• USD funding remains supportive across EM, though not uniformly so.
• The indices are designed to reflect both the credit risk and liquidity dynamics in the markets.
• The report is a marketing communication and not investment research. It is intended for professional clients and eligible counterparties and may be subject to conflicts of interest.

Important Disclosures

• The document is not investment research and is not independent.
• It may contain "Research" as defined under MiFID II unbundling rules and is intended for firms that are either in scope and have signed up to a BNPP research package or are out of scope and not required to pay for research.
• BNPP may have financial interests in the issuers or securities mentioned, including positions in their securities, options, or derivatives.
• The document may include performance data based on back-testing and simulations, which are for illustrative purposes only.
• The information is not intended to provide investment, tax, or legal advice.
• The document may not be suitable for all investors and is intended for those with professional experience in investments.
• Transactions involving the products discussed may involve significant risk and are subject to the terms and conditions outlined in the document.

Conclusion

The report underscores that USD funding conditions in EM remain generally supportive, though there are signs of marginal tightening in certain regions. The XCCY basis indices serve as a reliable indicator of USD liquidity, helping to identify areas where funding may be more constrained. The findings are based on a combination of current account data, tenor weights, and market dynamics, and are intended to guide investment decisions in the context of EM financial markets.