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报告摘要

EM Strategy Plus Summary - 23 May 2014

Core Content

This document provides a comprehensive market outlook and asset allocation strategy for emerging markets (EMs) in May 2014, with a focus on FX, local debt, and credit instruments. It highlights the impact of El Niño on Latin American economies and discusses the implications of new interbank regulations in China. The strategy also includes trade reviews and asset allocation changes for several EM countries.

Key Views and Asset Allocation

Country	FX View	Local Debt View	Local Rates View	External Debt View
Brazil	Neutral	Avoid back end of the curve; trade the flatness of the belly	Medium-term steepening	Switch out of Brazil'23 into Colombia'23
Hungary	Bearish	Long HGB 19/As, FX-hedged	Receive the belly	Overweight
Indonesia	Bullish	Bullish on IDR bonds	-	Rotate from hard currency to local currency
Malaysia	Neutral	Neutral	Neutral	Neutral
Mexico	Neutral	Back end of the curve is already priced in structural reforms	Trade tactically focusing on 1y-5y tenors	Neutral
Poland	Neutral	Buy POLGB Jul'18s	Receive the belly	Overweight
Russia	Steepening	Short duration	1s5s x-ccy steepener	Buy 5y Russian CDS
South Africa	Neutral	Long duration	Receive FRA 2x5	Switch out of SOAF'41 into ROMANI'44
Thailand	Neutral	Modest overweight	Front-end steepeners (1y3y); back-end flatteners (2y10y)	-
Turkey	Negative	Overweight 5y	1s5s x-ccy steepener	Neutral

Overall View:
In the absence of negative triggers, EM long carry and long duration trades continue to perform well. EM central banks are either prolonging their rate-cutting cycles or reversing previous tightening, in response to FX weakness.

El Niño and Latin America

The probability of an El Niño weather pattern emerging in October-November 2014 is 70%.
Historical data shows that during El Niño events, local markets and equities in Latin America have performed positively, with equities rallying substantially.
Agricultural prices are expected to rise 6–10 months after the onset of El Niño, with Argentina and Brazil likely to benefit the most.
El Niño is associated with increased rainfall in South America, which can lead to wetter-than-normal conditions in Brazil and Argentina, potentially reducing the risk of energy rationing in H2 2014.
The phenomenon is likely to have a negative impact on palm oil and Australian wheat production, and positive impact on soybean yields globally.

China: Impact of Interbank Regulations

New regulations aim to address loan-to-deposit ratio (LDR) circumvention, excessive duration mismatch, and liquidity risk management.
Shadow banking will be further restricted, and liquidity will flow back into the interbank market.
This should benefit bonds, with bond-swap spreads likely to widen as bond yields are biased downwards due to the current flush liquidity environment.
On the NDIRS curve, flatteners should be held as credit restraint and sector consolidation suggest growth could disappoint.

Trade Review

TRY 1s5s x-ccy steepener: +10 bp, P/L kUSD: 100
RUB 1s5s x-ccy steepener: +10 bp, P/L kUSD: 50
Receive ZAR FRA 2x5: -4 bp, P/L kUSD: -20
Buy ROMGB 07/17: +67 bp, P/L kUSD: 670
Buy POLGB 07/18: +31 bp, P/L kUSD: 310
Buy HGB 19/A: +69 bp, P/L kUSD: 690
Pay 10y CLPxCAM: -9 bp, P/L kUSD: -45
Steepener BRL DI Jan'16/Jan'17: -1 bp, P/L kUSD: -13
Flattener CLPxCAM 3y vs 5y (take profit): +14 bp, P/L kUSD: 70
Receive belly in BRL DI Jan 15x16x17 fly (take profit): +23 bp, P/L kUSD: 228
Receive 1y1y KRW NDIRS: +5 bp, P/L kUSD: 50
1s5s CNY repo flattener: +1 bp, P/L kUSD: 10
5y CNY Shibor-repo widener: +4 bp, P/L kUSD: 40
2s5s CNY Shibor steepener: +2 bp, P/L kUSD: 20
2s10s THB IRS flattener (closed): -3 bp, P/L kUSD: -30
Buy 3m MYRTWD: +0.78%, P/L kUSD: 78
Sell 12m USDIDR: -1.39%, P/L kUSD: -139
Sell 3m USDCNY NDF: +0.21%, P/L kUSD: 21
Switch into Colom'23 out of Brazil'23 (take profit): +21 bp, P/L kUSD: 210

Asset Allocation Changes

Indonesia: Reduced overweight to neutral due to political uncertainty and increased supply.
Thailand: Maintained modest overweight as the market continues to focus on macro reforms.
Turkey: Neutral in the model portfolio.
Brazil: Continued to hold a tactical steepener on DI Jan'16xJan'17.
Hungary: Long the belly of the HGB curve and short the HUF.
Poland: Long the belly of the POLGB curve.
Russia: Continue to like 1s5s RUB x-ccy steepeners.
Colombia: Expected to hike rates, which could lead to further steepening of the curve.

Risks and Final Comments

The study on El Niño is based on historical data, and there is a risk that current conditions differ from past patterns.
Inflation does not show a clear pattern, but food costs could have a significant impact on CPIs.
The conclusion on inflation may be misleading, as the dynamics might be driven by real FX rate appreciation.
The strategy suggests long inflation-linked bonds and commodity currencies like the BRL as a hedge against food price increases.

Summary of Key Points

El Niño is expected to emerge in October-November 2014 with a 70% probability, and could positively impact Latin American risk assets.
Agricultural prices are likely to increase 6–10 months after the event, with Brazil and Argentina benefiting the most.
New interbank regulations in China will lead to liquidity flowing back into the interbank market, benefiting bonds and wider bond-swap spreads.
EM central banks are either prolonging rate cuts or reversing previous tightening, in response to FX weakness.
FX strategies include steepeners on TRY and RUB, flattener on THB, and neutral on others.
Local debt strategies emphasize steepeners and flatteners based on the NDIRS and DI curves.
Asset allocation has been adjusted, with Indonesia reduced to neutral and Thailand kept at modest overweight.
Data mining is used to project future dynamics, but care must be taken due to potential differences in current conditions.