德银-新兴市场-宏观策略-新兴市场宏观与策略聚焦-2019.5.31-51页 (2).pdf

31 May 2019Economics Focus:In Asia,RBI is likely to deliver another 25bps rate cut and hint at more.In CEEMEA,watch for CPI data across the region(Turkey,Russia,Hungary,and Poland)and BoI on ILS concerns and thus intervention.Meanwhile,Q1 GDP in South Africa will likely confirm a renewed downturn,while NBP remains on hold.In LatAm,we see BCCh on hold at 3%and most of the attention will be on the central banks updated estimates of potential output and the neutral interest rate included in the IPoM.Watch also for Chiles activity data(where we expect the Imacec at 2.2%y/y vs.1.9%y/y)and inflation(to rise from 2%y/y to 2.3%y/y on energy prices and a weaker peso).In Mexico,we expect a 4.5%y/y print,which is likely to keep inflation expectations under pressure.In Argentina,focus on alliances for the presi-dential race and local elections(in San Juan,Governor Sergio Uac,who recently announced his support to“Los Fernandez”,will run for reelection).Strategy Focus:EM offers little intrinsic value on lingering idiosyncratic risks and reduced push from the global economy.We continue to favor hard-currency debt vs.EM FX,while still neutral EM credit.Focus on RV opportunities generated by recent dislocations and domestic fundamentals as determinants of local fixed income.nFX:EM FX continues to drift in line with the USD,growth fears,and domestic idiosyncratic shocks.We revert to our long-term bearish stance on ZAR on growth and constrained path to reforms but maintain our bullish view on RUB(vs.USD and MXN,on mountain growth and fiscal risks)as the fundamental underpinnings which supported the currency in Q1(BoP,positioning,valuation,real rates buffer)remain solidly in place.Stay neutral TRY until a credible solution for geopolitical risks is found and bearish HUF on CBs dovish stance.We are tactically short ILS on BoIs intensified rhetoric against the strong exchange rate,while the dissolution of parliament increases the chance of fiscal slippage into the next elections.LatAm-and parts of Asia-remain more sensitive to US-China trade tensions.Both the CLP and COP have overshot fundamentals and EM FX.We position for some retracement via selling EUR/COP,MXN/COP,and ZAR/CLP.The BRL has recovered after our recommendation to buy USD/BRL hit its target at 4.10.We see further retracement as political noise eases,but event risks remain high.nRates:The global environment remains more favorable for EM FI than EMFX on lower core rates and falling oil prices.This-and valuation-still support our Russia overweight and flatter curves in Brazil,Mexico,Colombia and Peru.Keep a modest overweight on Turkey on valuation,light positioning,and falling inflation but stay neutral South Africa on aggressive Drausio GiacomelliStrategistJed EvansStrategistSebastian A.BrownStrategistHongtao JiangStrategistJuliana LeeChief EconomistKubilay OzturkChief EconomistDavid PetitcolinStrategistChristian WietoskaStrategistJundong ZhangMacro StrategistDeutsche Bank Securities Inc.DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.MCI(P)066/04/2019.Deutsche BankResearch Global Emerging Markets EM Macro and Strategy Focus Date Distributed on:31/05/2019 16:42:11 GMT7T2se3r0Ot6kwoPa31 May 2019EM Macro and Strategy FocusPage 2Deutsche Bank Securities Inc.pricing and lingering fiscal risks.In CEE,we favor Polish bonds,followed by Czech Republic on tightening vs.the unappealing valuations across Hungarian or Israeli bonds.In rates,we pay 1Y1Y IRS in South Africa,keep steepeners in HUF and recommend 2y2y payers in CZK if trading below 1.75%.We stopped out of Chile payers and are now neutral.nCredit:Stay marketweight EM credit(for now)but keep an overall cautious stance on high-yielders given the riskoff tone in the markets.Position for further downside in Mexico credit in the coming days on tariff news as chance for immediate escalation is small.Lift Brazil hedge by unwinding long 5Y CDS positions on improved political backdrop and momentum for pension reform(and maintain curve flatteners/basis wideners in 47s vs.10Y CDS).Remain marketweight(but with a cautious bias)on Argentina;we continue to recommend Pars as a defensive position as strategic exposure in addition to RV positions(Discounts vs.28Ns and EUR 23s vs.USD 23s fx-hedged,tightening stops in both cases to protect gains).Remain constructive Ukraine via long 26s and GDP Warrants.Continue to favor South Africa curve flatteners 30s vs.25s.Figure 1:Best&Worst FX Perform-ance1.6%0.8%0.8%0.4%-0.7%-0.8%-1.3%-2.1%USD/BRLEUR/TRYUSD/ARSUSD/IDRUSD/MXNEUR/RUBUSD/CLPEUR/ZARWeekly Return(%)Source:Global Markets ResearchFigure 2:Best&Worst Rates Per-formance-82-40-28-20-9-9-8-8TRYBRLCLPMXNPLNILSZARMYRWeekly 5Y IRS Spread Chg(bps)Source:Global Markets Research31 May 2019EM Macro and Strategy FocusDeutsche Bank Securities Inc.Page 3Table Of ContentsTop Trades.4Top Economic Releases.5EM Global Strategy.6EM Flows-A sharp swing to outflows.6LatAm Strategy.8Trade war heats up on the Southern Front.8Assessing across currency relative value in LatAm.11Brazil:What next for rates.17Chile-a change of scenario.19CEEMEA Strategy.20South Africa-how to trade local markets.20Russia-how to trade local markets.22Turkey local markets-foreign flow update.24The CEEMEA Local Markets Portfolio.26Supply/Demand dynamics recapping the week.27Economics Focus.28Asia.28CEEMEA.29LatAm.31Economic Data and Market Analytics.36Value in EM Fixed Income:A model approach.36Economics and Markets Highlights.38Bond Auctions.39Bond Auctions.40Economic Releases.41Economic Releases.42All Open Trade Recommendations.44Recent Publications.4531 May 2019EM Macro and Strategy FocusPage 4Deutsche Bank Securities Inc.Top TradesCountryTrade NameInitiationLast ActionLast ActionDateEntryCurrentTargetStop1 IsraelLong USD/ILS20May19Initiation20May193.583.633.653.532 RussiaShort USD/RUB08Jan19Chg Target 01Feb1967.4065.5562.0069.001 Mex/ColombiaSell MXN/COP15May19Initiation172.50175.37160.00178.002 Mex RussiaSell MXN/RUB13Mar19Initiation3.403.403.253.553 SA/ChileSell ZAR/CLP15May19Initiation48.7848.2045.0050.501 Hungary2s10s IRS steepener03Jan19Chg Stop31May19130.00138.87190.00130.002 South Africa1Y1Y IRS payers29May19Initiation29May196.936.987.306.751 BrazilReceive BRL Jan22|Jan2330May19Initiation8788788009302 Chile/PeruLong Sob 24s vs Chile BTP 24s09May19Initiation716850853 ColombiaReceive IBR2Y16May19Initiation 4.524.414.104.604 ColombiaLong COLTES 28s28Feb19Chg Stop16May196.676.446.256.655 MexicoPay MXN TIIE 2Yr25Apr19Initiation8.077.968.307.901 Egypt Switch from 40s to 48s08May19Initiation0.630.580.450.752 Saudi Arabia27 sukuks vs.22 sukuks13Mar19Initiation55.7854.5435.0070.003 South Africa 30s vs.25s flattener10Apr19Initiation0.740.770.550.851 ArgentinaSwitch from 28Ns to Discounts13Mar19Change target/stop30May1912493751052 Brazil47s vs.28s flattener28Mar19Initiation9998801103 BrazilLong 47s vs.10Y CDS13Mar19Initiation607030704 ColombiaSwitch from CO 45s to ECOPET 45s08May19Initiation9098701005 MexicoLong 27s vs.5Y CDS13Mar19Initiation39462050Credit TradesEMEALATAMFX TradesEMEALATAMRates TradesEMEALATAMSource:DB Research31 May 2019EM Macro and Strategy FocusDeutsche Bank Securities Inc.Page 5Top Economic ReleasesCountryRelease DateRelease(month)PeriodPreviousDB ExpectedConsensusMalaysia6/3/2019Exports(YoY)Apr-19-0.50%-8.30%0.80%6/3/2019CPI(YoY)May-1919.50%19.20%19.10%Brazil6/4/2019Industrial production(IBGE)(MoM)Apr-19-1.30%S.Korea6/4/2019CPI(YoY)*May-190.60%0.70%0.70%6/4/2019GDP-saar(QoQ)Q1-20191.40%-1.80%-1.60%Thailand6/4/2019CPI(YoY)*May-191.20%1.20%1.00%6/5/2019Industrial Production(YoY)Apr-19-13.40%-11.00%6/5/2019Economic Activity(YoY)Apr-191.90%2.20%Colombia6/5/2019CPI(YoY)May-193.25%Philippines6/5/2019CPI(YoY)May-193.00%2.80%2.80%6/5/2019MPC meeting*Jun-191.50%1.50%Taiwan6/5/2019CPI(YoY)May-190.70%0.90%India6/6/2019RBI MeetingJun-196.00%5.75%6/6/2019CPI(YoY)*May-195.20%5.10%5.10%Brazil6/7/2019IBGE Inflation IPCA(MoM)May-190.57%6/7/2019CPI(YoY)May-192.00%2.20%6/7/2019Nominal overnight rate targetJun-193.00%3.00%6/7/2019CPI(YoY)May-194.41%4.50%ChileThe BCCh is expected to maintain the TPM at 3%.Most of the attention will be on the tone of its communication given the recent indications that a shift towards a more accommodative stance could be in progress.MexicoThe month on month decline of the CPI index due to seasonal factors will still result in an increase of inflation in y/y terms.RussiaCPI inflation looks to have decelerated modestly in May to 5.1%yoy from 5.2%in April,with a moderate+0.3%MoM trend.On a seasonally adjusted basis,this should make May the third consecutive month Continued on Econ Release sectionChileIncreases in gasoline and energy prices as well as a weaker peso should put upwards pressure on inflation relative to last months print.ArgentinaPrivate estimates suggests that IP remained subdued during April due an overall negative performance across all sectors.ChileThe rebound of non-mining activity should improve Aprils growth data.PolandWe expect the MPC to keep its monetary policy stance unchanged in its June meeting.There has not been much change on macro front since the May meeting,except for global oil prices getting lower.The Bank Continued on Econ Release sectionTurkeyWe expect Turkey headline inflation to edge down in May on the back of supportive base,stable pump prices,lower unprocessed food(despite the Ramadan impact)and cut in water tariff in Istanbul.Continued on Econ Release sectionSouth AfricaBoth mining and manufacturing collapsed sharply in Q1,the former largely due to protracted strike activity.The weakness in electricity supply and export activity didnt help.These two sectors are Continued on Econ Release section31 May 2019EM Macro and Strategy FocusPage 6Deutsche Bank Securities Inc.EM Global StrategyEM Flows-A sharp swing to outflows*Please see here for the full report.*Latest findings:The EM flow Indicator In May,EM local markets saw sizable outflows from both local debt and equities(more so in equities).Even though the outflows have weak-ened of late,the size of the outflows is the largest since last July.Flow dynamics are even more striking given that after strong inflows in April,the deterioration in flows of EM local assets came on the back of the escalation of the trade war and the weak performance in April(both FX and local bonds).In April,EM local bonds(both FX-unhedged and hedged)provided negative returns(please see the April performance review ).As we have pointed out in the past,weak performance,consequently,leads to outflows with a lag of a few weeks.This recur-ring pattern strengthens again the argument we made in the report Flows chase performance.The outflows were further amplified by the rising risk sentiments amid the renewed trade war.In May,local bonds saw solid performance while FX posted negative returns,which seems neutral for flows in June.The heightened risk aversion,however,would weigh on flows into EM local assets in the following weeks.The EM Risk Monitor has turned sharply into risk negative territory,after a short period in risk-positive territory.All three regions following the same risk pattern,with Asia showing the most negative signal.EMFI/FX Performance Monitor Over the past few weeks,the returns on both EM local bonds and EMFX have been slightly weaker than or roughly in line with what is implied by the flow indicators.Overall,both asset classes remain rich relative to what is implied by cumulative flows.The dislocation,however,has significantly narrowed compared to Q1.Figure 3:EM Flow Indicator:In May,EM local assets saw sizable outflows-4.0-3.0-2.0-1.00.01.02.03.04.0Nov-17Dec-17Jan-18Feb-18Mar-18Apr-18May-18Jun-18Jul-18Aug-18Sep-18Oct-18Nov-18Dec-18Jan-19Feb-19Mar-19Apr-19May-19normalized flows(12m)EM Flow Indicator-debt+equityEM inflowsEM outflowsSource:Deutsche Bank,EPFR,IIF,Bloomberg Finance LP.Note:We consider values +0.5 to indicate significant inflows and values 40%foreign participation of late positioning is not yet crowded(share of holdings is still well below the 35%peak in March-18).Further,term premium remains high and Russian fixed income remains among the most attractive fixed income markets within our EM Fixed Income Scorecard.nOn FX,we argue that despite the strong rally so far this year,RUB longs remain attractive.In particular,the strong improvement in the current 31 May 2019EM Macro and Strategy FocusDeutsche Bank Securities Inc.Page 23account from 2.5%of GDP last year to 7%of GDP this year means Russia is looking to run solid current account surpluses even in the seasonally weaker second and third quarters.We also view cautious and gradual easing by the CBR as helping to maintain a healthy rates buffer for RUB.While some measures of short-term positioning are extended,RUB Is the only high-yielding EM that doesnt suffer from a long-term positioning overhang.Finally,our long-term valuation models suggests there is still substantial room for RUB appreciation,with an average of the models putting USD/RUB fair value close to 57.nFI to outperform FX:Looking at RV between FX and FI,we argue that local bonds look somewhat more attractive at the moment.Although local bonds have caught up with the performance in FX after noticeable underperformance in January and February,we now see domestic dynamics as well as the external backdrop as more favourable for FI than FX.Among others,RUB has benefitted from significant inflows in Russian fixed income over the past few months.In fact,since YTD,Russia has issued USD 18bn in local debt,which is 2x more than at the same time in 2018.Foreigners have accumulated around 5.5bn in bond holdings during this period.Given favourable demand dynamics,MinFin has already reached its supply target for Q2 and recently announced that it would not increase the overall supply for this year.While we continue to expect some front-loaded borrowing(to prepare for any additional US sanctions),we now expect noticeably lower supply at the weekly auctions.While this supports local bonds(lower term premium),it limits the amount of foreign inflows and therefore does not provide an additional boost for RUB.Further,we argue that falling inflation and the expected easing cycle will support fixed income more than FX;in addition,FX-buying under the fiscal rule will limit the upside potential for RUB.Last but not least although both RUB and OFZs are in general not highly sensitive to external shocks we believe the current environment with low core rates,uncertainty on trade war,slowing global growth and potential addition stimuli by global central banks is more favourable for EMFI than EMFX.nDespite our slightly more constructive view on FI vs FX,we would dissuade investors from hedging the FX exposure or any RV trades in rates vs FX.We still favor positioning in local bonds FX unhedged and overweight Russian fixed income in our portfolio.Figure 30:RUB stands out on twin surplusesRUBZARTRYCZKPLNHUFILSCNYPHPIDRINRKRWBRLCLPCOPMXNMYR-8-6-4-2024-6-4-202468Current account