20160805-法国巴黎银行-EM_Strategy_Plus_40页_4mb

EM Strategy Plus Summary - 5 August 2016

Core Content

This document outlines the key themes and recommendations for emerging market (EM) investments as of 5 August 2016. It highlights the importance of monitoring the US Federal Reserve's policy stance and the health of China's economy, which are central to EM performance. The document also covers various country-specific analyses and trade recommendations across Asia, CEEMEA, Latam, and other regions.

Main Focus Areas

• US Federal Reserve and China's Economy: The primary focus for EM remains the Fed's policy stance and the state of China's economy. The document notes that while the positive view on EM high yielders is maintained, risks are increasing due to upcoming Fed decisions.
• China's Monetary Policy Framework: The PBoC is exploring an "interest-rate corridor" mechanism as a new pricing-based framework. The 7-day pledged repo rate is expected to become the new policy rate.
• Asian FX Positioning: Broad USD/Asia shorts have increased, and the aggregate short positioning is at the highest level of the year.
• CEEMEA Sovereign Credit: The document suggests a tightening of high-yielding against low-yielding sovereign bonds due to a strong external environment.
• Turkey's Sovereign Wealth Fund: Turkey is planning to set up a sovereign wealth fund in 2017, which may increase the supply of debt and raise the cost of capital.
• Argentina's Tax Amnesty: The tax amnesty is expected to result in 8% of GDP in savings being declared, with short-term positive effects but long-term fiscal concerns.
• Brazil's USD Rates and DI Swap: The short end of the onshore USD curve is below model error bands, and investors are advised to pay synthetic USD rates. The fair value of Brazil's 5y DI is estimated at 11.31% by Q1 2017.
• Latam FX Outlook: The PEN is expected to rise, and investors are advised to go short EURPEN to avoid USD systematic risk.

Key Recommendations

• Interest Rates:

  • Buy 20y IDR bond (10k USD)
  • Receive ZAR 5y5y, pay US 5y5y (10k USD)
  • Buy POLGB Jul/26 (10k USD)
  • Pay the belly of 1s2s5s butterfly at TRY XCCY (5k USD)
  • Buy Brazil NTN-B May 21 (20k USD)
  • Receive DI Jan19 (20k USD)
  • Buy 1m USDBRL Digital CS 3.33/3.50 (1:1) (0.5mn USD)

• FX:

  • Buy USDSGD (10mn USD)
  • Buy BRL against a basket (CLP, EUR & AUD) via 1m NDF (15mn USD)
  • Sell EURPEN via 1m NDF (8 mn USD)

• Options:

  • Buy 3m dual digitals in USDJPY (109) and USDKRW (1160) (1mn USD payout)
  • Buy 3m USDINR PS 68.15/66.65 (1:1) (10mn USD)
  • Buy 3m USDIDR put fly 13600/13150/12750 (1:2:1) (10mn USD)
  • Sell 1y USDCNH ATMF straddles (1.5mn USD)
  • Buy 1m USDBRL Digital CS 3.33/3.50 (1:1) (0.5mn USD)
  • Buy 1y USDMXN digital put 18.00 (1.5mn USD)

• Credit:

  • Buy Turkey EUR 21s, buy Turkey $ 5y CDS (10mn USD)
  • Buy Gabon $ 24s/25s, sell Nigeria $ 23s (2mn USD)
  • Buy South Africa $ 22s, sell Poland $ 22s (5mn USD)
  • Buy Hungary $ 21s, sell Poland $ 21s (5mn USD)
  • Buy South Africa $ 22s, sell Croatia $ 23s (5mn USD)
  • Buy Tunisia $ 25s, sell SECO $ 22s (3mn USD)
  • Buy Slovenia $ 22s, sell Latvia $ 21s (5mn USD)
  • Buy Hungary $ 21s, buy Hungary 5y CDS (10mn USD)
  • Buy Turkey $ 21s, buy Turkey 5y CDS (10mn USD)
  • Sell SECO $ 22s, sell Saudi 5y CDS (4.5mn USD)

Trade Review

• Asia: No new recommendations. Closed long 12m USDHKD at stop loss level.
• CEEMEA: Extended stop loss on Turkey's $ bond/CDS basis buy due to the rating review.
• Latam: Recommended paying synthetic USD rates in Brazil. Advised going long a USDBRL digital call spread.

Idiosyncratic Factors

• South Africa: Municipal elections led to a drop in ANC support, which could prompt national-level reforms.
• India: The Modi administration advanced tax reforms, including the introduction of a national goods and services tax.
• Turkey: The rating review is a key focus, with no expected downgrade this week.
• Poland: The new FX-denominated loan conversion bill reduced downgrade risks.

Upcoming Events

• Asia: Thailand's referendum on a new constitution, India, South Korea, and the Philippines' monetary policy meetings.
• CEEMEA: Russia's Q2 GDP release, Hungary and Poland's CPI and GDP data, and Poland's current account release.
• Latam: Mexico's monetary policy meeting, Chile's central bank minutes, Colombia's monetary policy minutes, and Brazil's impeachment vote.

China's Monetary Policy and Transmission Mechanism

• The PBoC is moving towards an interest rate corridor system, with the 7-day pledged repo rate as the new policy rate.
• The PBoC uses a range of traditional and unconventional tools, including base interest rates, RRR, and OMOs, to manage liquidity and achieve macroeconomic targets.
• The PBoC's monetary policy is influenced by the State Council, which sets economic targets annually.

Conclusion

The document underscores the importance of tracking global central bank policies, especially the Fed and PBoC, and the impact of idiosyncratic events on EM markets. It provides a comprehensive overview of current market positions, trade recommendations, and upcoming economic data releases that could influence investment strategies in the coming weeks.