20161125-法国巴黎银行-EM_Strategy_Plus_23页_3mb

EM Strategy Plus Summary - 25 November 2016

Core Content

This document is a comprehensive market strategy report from BNP Paribas, covering key developments and recommendations in Emerging Markets (EM) across Asia, CEEMEA, and Latin America (Latam). The report discusses the impact of US monetary policy on EMs, analyzes current account positions, FX-denominated debt, and interest rate movements, and provides trade recommendations and performance data.

Main Concerns and Key Points

• EM Current Account Position: Improved since the tapering of US quantitative easing (QE), but the main concern is the accumulation of FX-denominated debt.
• FX-Denominated Debt Stock: A significant issue for EMs, especially Turkey, which has seen its FX indebtedness increase from USD 270bn in 2009 to USD 421bn.
• Interest Rates: The US is expected to raise rates aggressively, with the Federal Reserve planning a 25bp hike in December, followed by two more in 2017 and four in 2018.
• EM FX Implied Real Rates: Negative in 2013-2014, but now positive for most EM countries, except Turkey and Mexico.

Trade Recommendations

• Mexico: Re-entering the 1y1y TIE receiver position. Extended target and stop loss.
• South Korea: Closing long USDKRW position at around 1,177.5, having reached the target of 1,150.
• India: Closing the recommendation to sell SGD vs INR due to the rupee losing its carry crown.
• Turkey: Closing USDTRY call spread for a 1.96% profit.
• Brazil: Increasing DI Jan25 receiver position and re-opening the long Jun19 UDIBonus (real rates) position.

Performance Overview

• Rates: Overall P/L of -301k USD.
• FX: Overall P/L of 1553k USD.
• Options: Overall P/L of -482k USD.
• Credit: Overall P/L of 37k USD.

Regional Analysis

Asia

• India: INR has lost its carry crown due to plunging interest rates and FX implied yields. The rupee is underperforming, and the bond market is restricted.
• South Korea: The long USDKRW position was closed after reaching the target, with a re-entry at 1,171 due to fresh momentum post-US election.

CEEMEA

• Turkey: The central bank surprised the market with a rate hike, but the impact is limited. The CBRT has other tools to manage currency depreciation.
• South Africa: S&P's rating review is a focus, with a possible downgrade to HY expected in mid-2017.
• Poland: CPI inflation is expected to rise into positive territory.
• Hungary: Manufacturing PMI is expected to fall in November.
• Czech Republic: Manufacturing PMI is expected to increase slightly.

Latam

• Brazil: Foreign participation in public debt has decreased, with non-residents holding USD 135.7bn. The government is likely to show support in Congress, and the DI curve is pricing in a 30bp cut.
• Mexico: The central bank's decision to hike rates by 50bp was less than expected, and the minutes will provide insights into future rate hikes.

Key Themes

• Carry Trade Impact: The rupee's loss of carry status has led to the closure of the SGD vs INR trade.
• US Tapering and EM FX: The tapering of US QE led to a smooth landing for EMs, but a steepening of the US curve could affect credit.
• Currency Depreciation and Policy Response: The CBRT has shown signs of tightening liquidity and using FX measures to support the TRY.
• Public Debt Trends: Foreign investors have reduced their exposure to Brazilian local debt, with local and pension funds taking over.

New Recommendations

• Buy Jun19 UDIBonos: PV01/notional USD 10k, entry level 2.96%, target 2.00%, stop 3.86%.
• Receive Brazil DI Jan25: PV01/notional USD 5k, entry level 12.06%, target 11.36%, stop 12.62%.
• Receive 1y1y TIIE Mexico: PV01/notional USD 7k, entry level 7.05%, target 6.50%, stop 8.00%.
• Receive 3y IBR Colombia: PV01/notional USD 5k, entry level 6.22%, target 5.75%, stop 6.61%.
• Buy 1m USDTWD NDF: PV01/notional USD 10mn, entry level 31.66, target 32.0, stop 32.5.
• Buy 1m USDKRW: Closed for 0.56% profit.
• Buy 6w USDTRY call with strike 3.25, sell call at 3.35: Closed for 1.96% profit.

Summary of Market Movements

• India: FX implied yields in INR have fallen from 6.0% to 4.7%.
• South Korea: USDKRW has reached the target, but the pair is overbought.
• Turkey: CBRT's rate hike and liquidity measures are being monitored for their impact on currency depreciation.
• Brazil: Non-resident participation in public debt has decreased to 14.90%, with USD 135.7bn in holdings.

Conclusion

The report emphasizes the importance of managing FX-denominated debt and the impact of US monetary policy on EMs. It highlights the need for vigilance in currency depreciation and the potential for further rate hikes in Turkey. Additionally, it outlines the continued focus on real rates and the shift in foreign participation in Brazil's debt market.