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EM STRATEGY DAILY - 17 April 2018 Summary

Core Content Overview

This document is a daily strategy report from BNP Paribas Global Markets, focusing on Emerging Markets (EM) in the context of fixed income, FX, and interest rate markets. It provides insights into key economic indicators, bond market activity, currency trends, and strategic recommendations across several regions: CEEMEA (Central and Eastern Europe, the Middle East, and Eastern Europe), Asia, and Latin America (Latam).

Main Views and Key Information

China

• Economic Indicators: Q1 GDP growth remained flat at 6.8% y/y, aligning with market expectations.
• Bond Market: The 5Y CGB (Central Government Bond) target of 3.5% was exceeded, prompting the decision to take profits at +40bps.
• Market Dynamics: CGB demand remains strong from both foreign investors and local banks, though market makers are running low on inventory.

Turkey

• Bond Auction: The Turkish Treasury will issue 5y fixed-coupon bonds today, with a total borrowing requirement of TRY 3.7bn for April.
• Debt Rollover: The Treasury has already sold TRY 2.0bn of 10y bonds this week, leaving TRY 1.7bn to be issued.
• Bond Recommendation: Buy 10y local bonds (FX unhedged) at 13.05%, targeting 12.50% and stop at 13.45%.
• Risk Consideration: The main risk is the Central Bank of the Republic of Turkey (CBRT) failing to hike rates at the MPC meeting on 25 April, which is considered unlikely.

Romania

• Monetary Policy: The central bank drained EUR 4bn in liquidity through an unannounced deposit tender, leading to a market repricing and higher yields.
• RON Performance: The RON gained against the EUR following the tightening move.

Israel

• Policy Rates: The Bank of Israel (BOI) left policy rates unchanged and kept interest rates, inflation, and growth forecasts unchanged.
• Rate Outlook: BOI expects rates to remain on hold until Q4 2018, when inflation is expected to move into the 1-3% target band.

Asia FX and Equity Markets

• Mixed Performance: Asian equity and FX markets are trading on a mixed footing.
• Currency Sentiment: Investors maintain moderate long positions in Asian currencies, with a sharp reduction in TWD long positions and caution around INR and PHP. IDR, THB, and SGD show more positive sentiment.

Latin America (Latam)

• Peru: Non-resident exposure to the Soberanos curve in Peru fell by 8.3% since November. Despite a 1.1% appreciation of the PEN against the USD in March, foreign investors' exposure to PEN nominal rates fell by 2.1% m/m to USD DV01 9.5mn (up 41.2% y/y).
• Further Details: Refer to the publication: Peru: Pension funds increasing exposure to nominal rates for more details.

Strategic Recommendations

• China: Take profit on the long CGBs recommendation at 3.5%.
• Turkey: Buy 10y local bonds (FX unhedged) at 13.05%, targeting 12.50% and stop at 13.45%.
• Asia: Moderate long positions in currencies, with caution around INR and PHP.

Contacts

Legal and Regulatory Information

• This document is non-independent research and may be subject to conflicts of interest.
• It is a marketing communication and not investment research.
• It may contain "Research" as defined under MiFID II unbundling rules, available only to certain clients.
• The information is not guaranteed for accuracy or completeness and is not intended as a recommendation.
• BNPP may engage in transactions inconsistent with the views expressed in this document.
• This document is confidential and not to be copied or distributed without prior consent.
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Additional Resources

• Online: BNP Paribas Global Markets Website
• Bloomberg: Fixed Income Research (BPFR), G10 Interest Rate Research (BPBS), Emerging Markets Research (BPFR), Market Economics (BPEC)

Disclaimer

BNPP and its affiliates do not provide investment, financial, legal, or tax advice. Past performance is not indicative of future results. Simulated performance is for illustrative purposes only. The information provided is subject to change and may not be relied upon as authoritative.