54824773 Barcap Emerging Markets Weekly
Transcript of 54824773 Barcap Emerging Markets Weekly
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EMERGING MARKETS RESEARCH 5 May 20
PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 33
THE EMERGING MARKETS WEEKLY
De-risked, but not distressedThe agreement on Portugals bailout package and a generally healthy set of PMI data
this week should encourage investors to view EM assets positively. The de-risking
this week was probably more technical in nature, namely profit-taking ahead of the
ECB/BoE and payrolls data.
Macro Outlooks
Emerging Asia: An exception that proves the rule 6
The Reserve Bank of India increased the speed of tightening to 50bp as it delivered its
ninth rate hike since March 2010 to counter rising inflation expectations. We expect
central banks in China, India, Korea, Malaysia, Philippines, Thailand and Taiwan to hike
policy rates in the next three months as they maintain a front-loading bias. Similarly, weexpect the Bank of Korea to hike 25bp next week to anchor inflation expectations.
EEMEA: Still room for expansion 8
Although growth has improved, we believe there is still room for further expansion, as
GDP output gaps remain in many countries. We expect Q1 11 GDP figures to improve
and IP to stay high but flatten. Next week, we expect Poland and South Africa to hold
and Serbia to continue hiking.
Latin America: Taking stock of growth and inflation trends 10
Inflation-targeting economies are split in two groups according to GDP gaps. Brazil and
Peru have had positive gaps since 2010, while Mexico, Colombia and Chile will likely
close them in H2 11. Inflation poses a larger risk for Brazil, while Chile, Colombia andPeru have a more comfortable position. The bulk of the Mexican disinflation reflects
base effects and is expected to reverse. Other demand indicators in the region confirm
a gradual convergence towards potential this year.
Strategy Focus
EEMEA FX: Moving mainstream 12
Since the publication of The Emerging Markets Quarterly, 22 March 2011, the beta
backdrop for EM currencies has turned more bullish. To position for this view, we
recommend closing our CZK long and moving into a PLN long, albeit with a tail-risk
hedge. Elsewhere, we tweak our other EEMEA FX trade recommendations.
Singapore: Updating our SGD NEER model 15We have recalibrated our SGD NEER model in light of the release of updated historical
data from the MAS. We expect the SGD NEER to remain above the midpoint of the
index through to year-end and now forecast USD/SGD to fall to 1.19 in 12m.
Chile: Fine-tuning our monetary policy call 18
Marginally more dovish communication from Chiles policymakers leads us to now
expect the central bank to deliver a 25bp hike on 12 May (previously 50bp) and pencil
in a pause at 5.0% (previously a steady normalization to 5.5%).
EM Views on a Page
EM Dashboard
EM FX Views on a Page
EM Credit Portfolio
Data Review & Preview
FX Forecasts and Forwards
Official Interest Rates
What we like
FX Long 9m CNY NDFs
FX Short EUR/Long PLN
Credit Long PDVSA 17 New
Weekly EM Asset Performance
EM-2.4%
-1.7%
-1.7%
-1.4%
-0.7%
-0.3%
-0.9%
-2.8%BRL/USD
ZAR/USD
CLP/USD
TRY/USD
MXN/USD
KRW/USD
INR/USD
RUB/USD
TWD/USD
EM Rates-10 bp
-4 bp-3 bp-2 bp
0 bp2 bp
2
-13 bp
-1 bp
8 bp
Mex TIIE 5yr
Pol 5yr IRSHun 5yr IRSCZK 5yr IRS
SA 2yr IRS
Braz Jan 12CLP 2yr IRSKor 2yr IRS
Indo 5yr Gov
India 2yr IRS
EM Credit
-13 bp
-10 bp-4 bp-3 bp
-3 b-2 -1-1
-25 bpVeni 5yr CDSArg 5yr CDS
Hun 5yr CDSIndo 5yr CDSBraz 5yr CDS
SA 5yr CDSPhils 5yr CDSTurk 5yr CDSRus 5yr CDS
Mex 5yr CDS
EM Equ-5.6%
-3.8%-3.7%-3.6%
-3.3%-1.9%
-1.3%
1
-5.6%
-0.5%
SensexRussia
BolsaFTSE JSEBovespa
JSE AllS&P
KospiShanghai
Turkey
Note: EM Assets Performance charts as of 5 May2011 excespreads, which are as of 4 May 2011.Source: Bloomberg, Markit, Barclays Capital
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5 May 2011 2
EM VIEWS ON A PAGE
What happened
Markets Risk markets took profits, with the S&P down nearly 1.8% on the week. US Treasuries extended their advance, and the yen was thetop-performing currency against the USD this week. In EM FX, most currencies sold off this week, with the exception of the TWDand the PEN. After a large widening over the past few weeks, Perus credit rallied (Peru 50 bonds were up 2.5pts) in response to a
poll conducted by Ipsos-Apoyo, which showed that Humala's lead over Fujimori declined to just 1 pp.Globalmacro
April manufacturing PMI prints for all of the countries in the emerging EMEA region were generally robust, though they weresomewhat more diverse on a country level. Employment conditions seem to be continuing to improve. The results were broadlyconsistent, with the German and euro area PMI still holding up at very strong levels.
Monetarypolicy
The Reserve Bank of India hiked the key policy rates 50bp, against expectations and our call for a 25bp hike. With the current hike, therepo and reverse repo rates stand at 7.25% and 6.25%, respectively. Malaysia initiated its rate hike cycle, raising its overnight policy rate25bp, to 3.0%, in line with our expectations; consensus expectations were for the BNM to remain on hold. We expect it to hike again in
July, by another 25bp. Bangko Sentral ng Pilipinas also hiked its policy rate 25bp, to 4.5%, in line with our and market expectations.Russia also raised its policy rates across the board by 25bp; the refinancing rate is now 8.25%. We expect another 25bp hike in May. InColombia, Banrep announced a 25bp hike of the reference rate, to 3.75%, on Friday, in line with our and the market's expectations. Wecontinue to expect the central bank to raise the overnight rate to 5.0% this year with a 25bp hike per meeting.
What we think
EM assets The agreement on Portugals bailout package and a generally healthy set of PMI data this week should encourage investors to viewEM assets positively. The de-risking this week was probably more technical in nature, namely profit-taking ahead of the ECB/BoEand payrolls data.
What we like
Asset class Trade Rationale
FX ShortEUR/longPLN
The improved positioning outlook in EM and the continued strength of the German economy all argue for switchinginto more mainstream, higher beta EEMEA FX. We recommend a tactical PLN cash long vs. the EUR (target 3.85),hedged with a EUR/PLN put digital option (strike 4.08) based on our concerns about the medium-term risks (fiscalconcerns, C/A and monetary policy credibility).
FX Long CNY9m NDFs
In the context of this weekends Strategic and Economic Dialogue, we look for USD/Asia to continue to drift lower,although we envisage a slower pace of appreciation, given recent performance. We highlight our long CNY 9m NDFahead of the SED meetings 9-10 May in Washington, DC.
Credit LongPDVSA 17N
We think that that PDVSA 17s new are attractive, given the change in their technicals. For the past three months, thecentral bank has been selling the new PDVSA 17 at USD120mn per week. Given that PDVSA previously allocated
USD2.6bn of these bonds, and average sales of approximately USD 30mn per week, there are only seven weeks ofadditional selling. Investors concerned about the current market volatility can hedge market risks buying protection(5y CDS in Venezuela is the ideal candidate).
Figure 1: Oil prices have tumbled this week Figure 2: Peru vs. Brazil 5y CDS: protection against politicallydriven volatility in Peru, election uncertainty remains
90
95
100
105
110
115
120
125
130
1-Jan 31-Jan 2-Mar 1-Apr 1-May
Brent Oil Price
90
100
110
120
130
140
150
160
170
180
1-Jan 31-Jan 2-Mar 1-Apr 1-May
90
95
100
105
110
115
120
125
Peru 5Y CDS Brazil 5Y CDS
Source: Bloomberg Source: Bloomberg
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5 May 2011 3
EMERGING MARKETS OUTLOOK
De-risked but not distressed
The agreement on Portugals bailout package and a generally healthy set of PMI data
this week should encourage investors to view EM assets positively. The de-risking we
have seen this week was probably more technical in nature, namely profit-taking ahead
of the ECB/BoE and payrolls data.
Downplay the de-risking
Notwithstanding the results of the US payrolls data due for release later today, the key
developments this week should result in investors looking positively towards EM assets. The
agreement on Portugals bailout package was reached quickly and in line with political
consensus (in Lisbon). The size of the package (EUR78bn, the equivalent of 45% of the
countrys 2010 GDP), in our European economists view, reflects the determination of the EU
authorities to ring-fence problems in the periphery. On the data front, this week has seen a
generally healthy set of PMI data releases both in developed markets (DM) and in EM. Also,
even though EEMEA PMI saw a slight setback and US non-manufacturing ISM surprised to the
downside, our economists see little to worry about in either of these regions, for now.
The de-risking that we have seen in global equities and, to some degree, in currency space in
EM has been rightly modest and we think, mainly technical in nature (eg, profit-taking ahead
of ECB/BoE and payrolls data). We believe overall EM positioning by real money investors is
helpful (figure 2), and with trading in recent weeks punctuated by public holidays, it seems
unlikely that speculative positions in EM local or external markets are extensive.
We think key beta factors for EM assets are still pointing in a positive direction: US rates and
Treasury yields remain contained; and our FX analysts believe that EUR/USD, in spite of a
recent correction, is likely to head higher. The uptrend on EUR/USD should offer some positive
pull for EM currencies. Figure 3 shows the spot FX performance of the major EM currencies
versus the performance suggested by the EUR/USD move on its own (EUR/USD change *
historical beta of EM FX to EUR/USD). With the exception of RUB and MXN, EM currencies
have not overstretched themselves given where EUR/USD has already moved to. If there is a
common restraint on EM FX, it is probably the temporary break for payers that we currently
see, with lower carry providing a little less appeal for yield-focused currency longs.
Koon Chow
+44 (0) 20 7773 7572
George Christou
+44 (0) 20 7773 1472
Agreement on Portugals bailout
package and a healthy set of
PMI is positive for EM assets
The de-risking this week has
largely been technical in nature
Figure 1: A healthy set of data should keep investor risk
appetite firm
Figure 2: Positioning in EM equities and bonds (local and
external) is not currently a problem
PMI (SA, 50+=Expansion)
32
36
40
44
48
52
56
60
Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10
EMEA EM Asia LatAm US EU Area
PMI (SA, 50+=Expansion)
32
36
40
44
48
52
56
60
Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10
EMEA EM Asia LatAm US EU Area
-3.0%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
2008 2009 2010 2011
EM bonds EM equities
Mutual fund OW/UW in EM space (ppt)
overweight
underweight
Source: National Statistics Sources, Barclays Capital Source: EPFR Global, Barclays Capital
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Payers can take a break but should be vigilant on commodity prices
Global oil and food prices have recently moderated, which may contribute to some erosion in
the amount of hikes priced in the near term and therefore, the potential for payers to perform.
However, we believe this is unlikely to last long for several reasons. First, our EM inflation
surprise index (updated for the March inflation prints) was still positive; that is, inflation has
still been surprising to the upside (though the index has recently come down off its highs). In
addition, policy surprises are still occurring (India surprised with a larger hike than we and themarket expected this week). This is generally symptomatic of narrowing output gaps in EM as
a whole (certainly when compared with DM) which should continue to support our long FX
and payer recommendations in the medium term. Second, our commodity research
colleagues still strongly emphasize the role of both demand and supply fundamentals in
keeping commodity prices high and skewing the risk outlook, The correlation coefficient
between commodity prices and EM equities has returned to positive territory since March,
suggesting a good scenario for risk taking. To put another way, commodity prices and
equities confirm the same thing - strong global demand. We note, however, that while
demand-driven commodity price increases are less worrying for EM (as it is likely to be
supplying most of the demand), our commodities team does not rule out the return of supply-
side concerns in the coming months, particularly for oil given the potential for a further
deterioration in Yemen and Bahrain. On the food side, supply shocks have already taken theirtoll on grain prices and should continue to pressure food prices higher. The risk is that if
supply-side pressure re-asserts itself, EM assets may see a repeat of Februarys price action.
We believe that a positive message should be conveyed on EM assets and that, despite our
concerns on EM inflation, it should also encompass some relief for EM fixed income in the
near term. The latter should not last, hence our characterisation of a break for payers.
More seriously, we remain sensitive to an inflection point in terms of EM assets reactions to
rising commodity prices. Specifically, we are sensitive to the point where rises are not
viewed as confirmed strong global demand, but a challenge to it. We do not see the market
being at that inflection point in the next few weeks but it joins our list of tail risks that we
highlighted in our recent publications (notably The EM Quarterly, 22 March 2011).
An easing in commodity prices
may, in the very near term, cap
the performance of payer trades
However, our EM inflation
surprise index is still in positive
territory
and supply- and demand-side
pressures should still push
commodity prices higher
Figure 3: EM FX is up ytd but compared with the EUR/USDmoves and historical betas, have not punched their weight
Figure 4: Commodity and risky asset correlations (MSCI EM)are positive
-2%
0%
2%
4%
6%
8%
10%
12%
RUB
MXN
HUF
*
IDR
KRW
SGD
BRL
MYR
TWD
PHP
CNY
CLP
INR
PLN
*
TRY
HKD
THB
ZAR
PEN
Eur contribution** Spot performance
Outperforming what the
beta to EUR would implyUnderperforming
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11
CRB Commod index Avg correl since 2010
break down in relationship during MENA related
commodity supply jitters and rotation out of EM equities
Note: * Versus EUR, ** beta to EUR/USD times by EUR/USD change.Source: Barclays Capital
Source: Bloomberg, Barclays Capital
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Peru - election watch
Peruvian assets remain in the spotlight following the volatility created by the uncertain
political situation (Peru: Electoral riddle, 26 April 2011). A May 4 poll conducted by Ipsos-
Apoyo showed that Humala's lead over Keiko Fujimori declined to just 1pp. The credit, after
a large widening over the past few weeks, rallied in response (Peru 50 bonds were up
2.5pts) and the PEN appreciated 0.28%. Peruvian equity markets have also rallied on the
news (the Peru Lima General Index was up 6.12% on the week). However, with the
candidates technically tied at the moment, and an important portion of the electorate still
undecided, the final result remains uncertain. Nonetheless, the market has reacted
optimistically and is positioning ahead for a potentially positive result on May 8th when the
next Ipsos-Apoyo poll will be release.
What we like
Rates: There is probably some room for tactical receivers (ie, PLN, to 2y, given our view of
no change at the May meeting). However the emphasis is tactical. Our structural/higher
confidence trades are still on the bearish side. Investors may get some attractive
opportunities to add or scale into these trades in the coming days/weeks. In EEMEA our
high confidence payer is Turkey (1y/1y) while elsewhere we highlight a KRW (1y) payer aswell. For Turkey, the widening C/A deficit necessitates a more aggressive tightening of
liquidity conditions with an impact on rates. In Korea, inflation is becoming a little more
problematic even though headline CPI recently surprised to the downside at 4.6% y/y. Core
inflation is rising and we look for the BoK to hike the policy rate by 25bp in May. We would
advise investors to add to pay INR OIS 1y positions, based on our view on policy and the
inflation risks in India.
Credit: We maintain our strategic Overweight in higher yielding credits, particularly
Venezuela and Ukraine. Positioning is not as supportive as previously for Ukraine and
Argentina, but investors have maintained a cautious stance on Venezuela. On a more
granular level, we have recently highlighted the PDVSA 17N as our instrument of choice to
express our constructive view on Venezuela (Venezuela: Manna from heaven, 28 ,April2011). In the low beta space in LatAm, we still like Brazil 10y CDS versus Mexico 10y CDS.
Mexico's has outperformed on the back of higher-than-expected growth. The medium-term
trend in Brazil's creditworthiness indicators, largely thanks to higher potential growth, is
more encouraging than that of Mexico. Hence, we think that Brazil should be trading tighter
than Mexico.
FX: The improved positioning outlook in EM and the continued strength of the German
economy all argue for switching into more mainstream, higher beta EEMEA FX (See EEMEA
Focus piece in this publication). Therefore, we close our CZK long vs EUR and open a tactical
PLN cash long vs the EUR (target 3.85, stop 4.00), given near-term FX appreciation
pressures, hedged with a EUR/PLN put digital option (strike 4.08) based on our concerns
about medium-term risks (eg, fiscal, C/A and monetary policy credibility). In EM Asia,central banks still remain comfortable with the idea that currency appreciation can be used
to lean against inflation. In the context of this weekends Strategic and Economic Dialogue,
we look for USD/Asia to continue to drift lower, although we envisage a slower pace of
appreciation from here given recent performance. We highlight our long CNY 9m NDF
ahead of the SED meetings. We also like our MYR seagull trade; while it has recently moved
in the money, we see potential for USD/MYR to reach 2.94 over the next 2.5 months.
Asset market volatility as
investors follow the opinion polls
closely
Some room for tactical receivers,
but our higher confidence trades
are still on the bearish side
We like paying TRY 1y1y and
KRW 1y. We also recommend
adding to INR OIS 1y payers
We maintain our strategic
Overweight in higher yielding
credits
In low beta credit space we still
like Brazil vs Mexico 10y CDS
Improved beta and positioning
argues for more mainstream and
higher beta EMEA FX longs
We continue to look for
USD/Asia to drift lower in the
context of the SED this weekend
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5 May 2011 6
MACRO OUTLOOK: EMERGING ASIA
An exception that proves the rule
The Reserve Bank of India increased the speed of tightening to 50bp as it delivered itsninth rate hike since March 2010 to counter rising inflation expectations.
We expect central banks in China, India, Korea, Malaysia, Philippines, Thailand and Taiwanto hike policy rates in the next three months as they maintain a front-loading bias.
Similarly, we expect the Bank of Korea to hike 25bp next week to anchor inflationexpectations.
Monetary policy: 50bp hike from RBI is an exception
The Reserve Bank of India (RBI) hiked its key policy rates the repo and reverse repo - by
50bp each earlier this week, to 7.25% and 6.25%, respectively. This was the ninth hike by
the RBI since March 2010, with a cumulative 250bp rise in the repo rate since then.
The RBIs policy stance remains markedly hawkish, with the central bank now almostexclusively focussed on containing inflation, even at the expense of growth. But inflation is
unlikely to be influenced meaningfully by this rate increase alone. We see the possibility that
the RBI may want to stay ultra-cautious and quash the chance of being perceived as falling
behind the curve. We factor in another 50bp of hikes in the next two policy announcements
(16 June and 21 July). Given the current level of systemic pressure on liquidity and interest
rates, policy rate hikes are no longer costless in terms of future growth. But, we think the
RBI is not in a position to give that consideration anything more than a distant second
priority for the time being. The RBI also noted the risks of higher fiscal spending and/or
higher inflation if oil prices are sustained at elevated levels.
In the coming weeks, we believe higher inflation prints could prompt the RBI to hike by
more than what the market is pricing in. Going into the next mid-quarter policy review on
16 June, the trend of large upside surprises in headline inflation, along with rising core
inflation, point towards to further tightening, in our view.
Rahul Bajoria
+65 6308 3511
Prakriti Sofat
+65 6308 3201
RBI increases the size of rate
increases to 50bp
Figure 1: Core prices rising quickly in India Figure 2: Leading to more decisive rate hikes
-4
-2
0
2
4
6
8
10
12
Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11
IN: Headline WPI (% y/y)
Non-food manufacturing inflati on
4%
5%
6%
7%
8%
9%
10%
Apr-08 Apr-09 Apr-10 Apr-11
India: Policy rate (%)
Source: CEIC, Barclays Capital Source: Bloomberg, Barclays Capital
and likely to remain extracautious to avoid being
perceived as behind the curve
We expect another 50bp of hikes
in the next three months
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5 May 2011 7
but the region will continue to follow the front-loading rule
Risks of acceleration in policy tightening elsewhere appear limited for now. In the
Philippines, against a backdrop of higher core prices the central bank delivered its second
rate hike of 25bp in less than two months. The BSP has stated that the rate hike was to
contain second-round effects and reign in inflation expectations. The central bank, which
has raised rates by 50bp in the current hiking cycle, also clearly indicated that its 2011
inflation target of 3-5% remains at risk. The deputy governor also noted that the Philippines
economy can accommodate the 50bp of hikes already delivered, adding that the BSP is not
ruling out future rate hikes. Our base case is for the BSP to stand pat in June to gauge
developments on inflation expectations, and then deliver another 25bp hike in July. Bank
Negara Malaysia (BNM) also hiked the overnight policy rate by 25bp to take the policy rate
to 3.00%. This was the first rate hike by BNM since July 2010, and the fourth 25bp rate hike
since the start of 2010. It also left the door open for further rate action based on its
assessment of growth and inflation prospects. We expect BNM to hike the policy rate by
25bp again at the next MPC in July.
We expect the front-loading of monetary policy tightening to continue across the region,
given the combination of rising inflation and high growth in most Asian economies. With
demand-pull pressures rising across the board, we believe that central banks in China, India,Korea, Malaysia, Thailand and Taiwan will again hike policy rates in Q2.
The week ahead: Bank of Korea, Bank Indonesia MPC
Next week the focus will shift to MPC meetings in Korea and Indonesia. We expect the Bank of
Korea (BoK) to hike its policy rate by 25bp, as it appears clear that core price pressures remain
elevated. We expect the BoK to deliver two further 25bp rate hikes in July and September
taking the policy rate to 3.75%. We expect Bank Indonesia to stand pat at 6.75% next week,
on the back of the downside inflation surprise. However, with core price pressures rising, we
believe that Indonesian rates remain on an uptrend. In China, we forecast export and import
growth to have moderated but to have remained strong, and a small surplus in the trade
balance. We see a broad moderation in April activity, with IP slowing to 14.5% y/y from 14.8%
previously. On the inflation side, we forecast April CPI to have edged lower to 5.2% y/y on
declines in some food prices, but price pressures remain elevated. We estimate new loans in
April of CNY700-750bn and M2 growth at a moderate 16.5%.
BSP and BNM deliver 25bp hike
to take its policy rate to 4.50%
and 3.00% respectively; we
expect both central banks to
hike again in July
Front-loading of rate hikes is
likely to remain the rule within
the region
Figure 3: Front-loading of rate hikes likely to continue Figure 4: Food inflation prices on the decline in China
0%
1%
2%
3%
4%5%
6%
7%
8%
9%
10%
Apr-08 Apr-09 Apr-10 Apr-11China Indonesia India
Korea Taiwan
80
100
120
140
160
180
Sep-09 Dec-09 Mar-10 Jun-10 Oct-10 Ja n-11 Apr-11
Grain Edible Oil MeatChicken Egg Vegetable
06 Sep 09=100
Source: Bloomberg, Barclays Capital Source: CEIC, Barclays Capital
Next week: Bank of Korea
expected to deliver a 25bp hike
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5 May 2011 8
MACRO OUTLOOK: EASTERN EUROPE, MIDDLE EAST, AND AFRICA
Still room for expansion
Although growth has improved, we believe there is still room for further expansion asGDP output gaps remain in many countries.
We expect Q1 11 GDP figures to improve and IP to stay high but flatten out. Russia raised rates and Romania and Czech Republic kept rates unchanged this week.
Next week we expect Poland and South Africa to hold and Serbia to continue hiking.
The EEMEA region output gap has risen from its lows, but it appears to have left room in
most countries for further expansion before overheating sets in. On average, the output gap
rose to +5% at the height in 2008, declined to -3.5% at end-2009, and climbed back to -1%
at end-2010, with most countries remaining in negative territory (Figure 1). The pattern was
somewhat different for capacity utilization, where the trough occurred earlier and recovery
progressed farther, pushing capacity utilization above average for most countries. This
seems to reflect manufacturing leading other sectors in an unbalanced recovery.
Additionally, countries with large output gaps tend to be experiencing lower inflationary
pressures, leading to a nearly linear inverse relationship between output gap and inflation
momentum (Figure 2). The countries with apparent risks of overheating are Turkey, South
Africa, and Israel. In contrast, Romania, Czech, and Russia still have large output gaps. We
are expecting GDP growth in Q1 11 to accelerate because of the buoyancy of exports, IP,
and employment gains (Figures 3 and 4). IP is already high and will likely remain strong, but
probably not accelerate.
In Poland, we expect the NBP to keep its policy rate on hold next week at 4.0%,
notwithstanding accelerating inflation. March inflation surprised on the upside at 4.3% y/y
from 3.6% the previous month. We forecast April inflation (released next week) to decline
slightly, to 4.2% y/y, on lower food inflation. According to statements from MPC members,
the dovish voting block will reject a rate increase this month. One argument is that core
inflation remains low at 1.9% y/y, so inflation is mostly externally driven by commodity
prices. Additionally, some board members are uneasy about the sustainability of growth.
Finally, the NBP and MinFin announced that EU transfers will be sold in the market this year
Daniel Hewitt
+44 (0) 20 3134 3522
Vladimir Pantyushin
+7 495 786 8450
Figure 1: Capacity utilization has recovered more than the
output gap
Figure 2: Expected inflationary pressures are higher in
countries where the output gap has closed
-4
-3
-2
-1
0
1
2
3
4
5
6
07 08 09 10
62
64
66
68
70
72
74
76
Output Gap: (GDP weighted average of 6 countries)
Capacity Utilization (GDP weighted average)
-4
-3
-2
-1
0
1
2
3
4
5
6
07 08 09 10
62
64
66
68
70
72
74
76
Output Gap: (GDP weighted average of 6 countries)
Capacity Utilization (GDP weighted average)
Russia
Poland
Hungary
Turkey
South Africa
Czech
Republic
Israel
Romania
Ukraine
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
-5.0 -4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0
Ouput gap (% GDP), Q4 2010
Inflation Momentum (CPI 2011F - CPI 2010), ppt
Source: National sources, EU, Haver Analytics, Barclays Capital Source: National sources, Haver Analytics, Barclays Capital
Output gap remains for most
countries; however, excess
productive capacity seems to be
disappearing in several countries
Poland NBP expected to keep
policy rate on hold next week
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(up to 12.5bn), instead of being retained by the NBP as FX reserves. This is expected to
lead to currency appreciation that will help hold back imported inflation. Having raised rates
in each of January and April by 25bp, dovish voters appear reluctant to raise rates in
consecutive meetings. We expect a resumption of hikes next month.
We expect South Africa to keep its policy rate on hold. Inflation has turned the corner, rising
to 4.1% y/y. However, with the policy rate at 5.5%, there is no need to rush into hikes. We
believe that continued economic expansion and higher global commodity prices willcontinue to push inflation up gradually and lead to policy hikes early in 2012. Serbia also has
a rate decision next week and we expect a 50bp rate hike to 13.0%. While the NBS has
increased rates a cumulative 450bp over the last nine months, inflation has outpaced this,
rising to 14.0% y/y in March, and we estimate April inflation (released next week) at
16.2% y/y due to electricity price hikes. In data released last week, growth was favourable
with flash Q1 11 GDP up 3% y/y and IP up 7.1% y/y in March.
As expected, in Czech Republic the CNB kept its policy rate at 0.75%. Inflation remains low at
1.7% y/y in March, and we expect further moderation to 1.5% in April (data to be released next
week) and core inflation remains even lower. We foresee some improvement in growth. PMI was
high in April at 59.0 and we expect March IP (released next week) to be up 10% y/y. More
importantly, our GDP growth proxy indicates that GDP accelerated in Q1 11 (data released next
week), we expect growth of 3.0% y/y from 2.6% in Q4 10 and see upside risks to our forecast.Based on the strength of this growth, we predict the CNB will begin hiking in August.
In Romania, the NBR kept its policy rate on hold at 6.25%, as expected. Inflation remained high
at 8.0% y/y in March and we predict next weeks April release will be 8.2% y/y due to
unfavourable base effects. We expect Q1 11 GDP growth (released next week) to move into a
positive range, up 0.3% y/y, marking the beginning of a likely sustained but gradual recovery.
Turkey CPI accelerated to 4.3% y/y in April from 4.0% in March. More significantly, core
inflation expanded to 4.4% y/y, so that inflation has become more broad-based. Even
though PMI dropped in April, at 52.7 it remains in expansionary territory and we expect the
April IP release next week to continue to show economic expansion.
Hungary PMI was very strong in April, at 56. Accordingly we expect IP to continue its brisk
pace rising in March. Given the rapid increase in PMI, IP and exports in Q1, we anticipate GDPgrowth rose to 2.8% y/y in Q1 11 (data released next week) from 1.9% y/y in Q4 10. We
expect inflation (data released next week) to have remained unchanged at 4.5% y/y in April.
South Africa is expected to keep
rates on hold, while Serbia is
likely to continue raising rates on
rising inflation
Czech central bank held policy
rate unchanged at 0.75%,
as expected
Romania central bank also kept
rates unchanged
Turkey inflation rose and growth
remains strong
Figure 3: Indicators imply acceleration of Q1 GDP growth Figure 4: Employment is starting to improve
-20%
-15%
-10%
-5%
0%
5%
10%
15%
Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11
-70%
-50%
-30%
-10%
10%
30%
50%
EMEA IP growth (PPP weighted), % y/yEMEA GDP growth (PPP weighted), % y/yEMEA exports (PPP weighted), % y/y RHS
Average unemployment (%)
4
6
8
10
12
14
16
18
2005 2006 2007 2008 2009 2010 2011
CE-3 Balkans CIS-3 Baltics
Source: National sources, Haver Analytics, Barclays Capital Source: National sources, Haver Analytics, Barclays Capital
Hungarys growth prospects
appear to be improving
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MACRO OUTLOOK: LATIN AMERICA
Taking stock of growth and inflation trends
Inflation-targeting economies are split in two groups according to GDP gaps. Braziland Peru have had positive gaps since 2010, while Mexico, Colombia and Chile will
likely close them in H2 11.
Inflation poses a larger risk for Brazil, while Chile, Colombia and Peru have a morecomfortable position. The bulk of the Mexican disinflation reflects base effects and is
expected to reverse.
Other demand indicators in the region confirm a gradual convergence towardspotential this year.
Latin America continues to experience solid growth momentum. The region is split between
economies that have closed their GDP gaps in 2010 (Brazil and Peru) and those that should
see this happening sometime between Q2 and Q3 11 (Chile, Mexico and Colombia). Figure 1
shows the GDP gap in these five economies since Q4 08, along with our estimates for Q1 11,
which is due out in the coming weeks for most of the region. While growth should be
moderating towards potential during the course of this year, Q1 releases are unlikely to show
that this convergence is happening swiftly. To be sure, Chilean monthly growth (Imacec)
points to a 6.5% q/q saar rise in 1Q. Hence, we continue to see GDP gaps trending north
across these countries.
Inflation remains a risk in the region. The most extreme case is Brazil, where inflation should
already breach the 6.5% upper bound of the target in April and remain above this threshold
level until January 2012, after peaking at the high 7.7% level in August. Core inflation also
corroborates our view, showing that domestic demand pressures are at work and there is a
material risk that the upper limit of the target could be reached in 2012 if the economic
activity does not slow. Chile, Colombia and Peru are feeling a more moderate build-up in
core inflation and are at still-comfortable levels. Meanwhile, base effects have helped theyear-on-year trend in Mexico, though to be sure, there was some good news in March, with
core and headline surprising on the downside. This combination of factors resulted in
inflation going back to target for the first time since 2006. Unfortunately, we expect this
trend to reverse, pushing headline inflation back up to 4.0% by yearend.
Alejandro Arreaza
+1 212 412 3021
Marcelo Salomon
+1 212 412 5717
The region is split between
economies that have closed
their GDP gaps in 2010 and
those that should see this
happening sometime
between Q2 and Q3 11.
Figure 1: Output gaps Figure 2: Core inflation
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
Q4 08 Q2 09 Q4 09 Q2 10 Q4 10
Brazil Chile ColombiaMexico Peru
Output gap (%)
-2
0
2
4
6
8
10
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
Brazil Chile ColombiaMexico Peru
% y/y
Source:: Haver Statistics, Barclays Capital Source: Haver Statistics, Barclays Capital
Inflation remains a risk, with
Brazil facing most problems
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Other indicators of domestic demand across the region are also showing strength, but with
a consolidation trend taking place. Excess growth of retail sales above industrial production
is softening. This has been the case since the beginning of the year in Brazil and Colombia,
after being in place in Venezuela since October last year. Meanwhile, Chilean domestic
demand continues to fire ahead of IP, and the difference is well above that observed in the
pre-crisis periods. Mexico also sticks out, as the momentum of domestic demand remains
below that of industrial activity.
Import growth continues to soften gradually, but remains at strong levels across the region.
The overall pattern is much more uniform than for other activity indicators, and with the
exception of Colombia and Venezuela, which continue to show an upward trend of import
growth, the data corroborate our view that growth moderation is taking place. On this front,
the only exception will probably be Venezuela, the only economy that still contracted last
year and should benefit this year from rising oil-driven public expenditures.
This backdrop helps us sort the main sources of pressure building up behind the monetary
policy normalization process in the region. The strongest inflation and growth pressures felt
in Brazil are leading to a prolonged period of tighter monetary conditions, despite the clear
pro-growth bias endorsed by the governments. Meanwhile, the output gap and observed
inflation outlook in Mexico are giving a dovish Banxico the ammunition to remain on hold,and even though inflation should have seen its trough in March, we believe policy
normalization is due to begin next year. Finally, we see the Chilean authorities probably
ready to start softening its tightening cycle (seeChile: Fine-tuning our monetary policy call,
May 4, 2011).
The pace at which retail
sales surpasses IP growth
appears to be moderating
while import growth is
strong and gradually
softening at the margin
Figure 3: Excess retail sales growth vs. IP Figure 4: Import growth consolidation
-10
-5
0
5
10
15
20
25
Jan-07 Oct-07 Jul-08 Apr-09 Jan-10 Oct-10
BR CL CO MX
% y/y 3mma
-60
-40
-20
0
20
40
60
80
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
AR BZ CL CO MX PE
% y/y 3mma
Source: Haver Analytics, Barclays Capital Source: Haver Analytics, Barclays Capital
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STRATEGY FOCUS: EEMEA FX
Moving mainstream
This is an extract of a report published on 4 May 2011.
Since the publication of The Emerging Markets Quarterly, 22 March 2011, the betabackdrop for EM currencies has turned more bullish. To position accordingly for this
view, we recommend closing our CZK-long and moving into a PLN-long, albeit with a
tail-risk hedge. Elsewhere, we tweak our other EEMEA FX trade recommendations.
Helpful beta factors and a healthy pull for EM European economies (from robust German
growth) argue for being long on aggregate EEMEA currencies. At the time we published The
Emerging Markets Quarterly, 22 March 2011, we were constructive EM currencies but did
not foresee major gains from being long EEMEA FX. Most of our EEMEA FX
recommendations were longs focused on idiosyncratic factors and with few pure longs in
the most liquid currencies. Since publication, the beta backdrop has turned more bullish
with the helpful adjustment (weaker) in the USD against major currencies. This has, to
varying degrees, washed into EM currencies against their base currencies. We still see roomfor further dollar weakness and, with generally constructive positioning technicals and the
return of EM fund inflows, we can see more room for gains in EEMEA FX longs. To position
accordingly for this view, we recommend closing our CZK-long and moving into a PLN-long,
albeit with a tail risk hedge. Elsewhere, we tweak our other EEMEA FX trade
recommendations as set out in Figure 1. Below we outline the key themes that have been
(and are likely to continue to be) more helpful for EEMEA currencies.
Figure 1: EEMEA FX trade ideas
Recommendations published in EM
Quarterly, 22 March 2011
Latest
Czech Republic Short EUR/long CZK cash CloseHungary Short TRY/long HUF cash Hold
Israel Short EUR/long ILS. Buy USD/ILSbutterfly
Close butterfly. Hold short EUR/ longILS
Kazakhstan Short USD/KZT 6m NDF Hold
Poland None Short EUR/long PLN cash. BuyEUR/PLN put digital as hedge (4.08strike, 1m, 12% cost)
Romania Long 6m T-bill, FX unhedged Hold
Serbia Short EUR/long RSD NDF (6m) Hold
Turkey Short TRY/HUF. Buy USD call/TRY putsprd (1.65, 1.75, 3m)
Hold short TRY / HUF. Adjust putsprd strikes (1.60, 1.70, 3m)
Source: Barclays Capital
CE currency trades in EEMEA Moving into the main stream
In light of the above, as well as the shifts that have occurred in CEE idiosyncratic factors
since publication ofThe Emerging Markets Quarterly, we have decided to tweak our CEE FX
trades to better reflect the current themes at play. We switch from lower-beta peripheral
CEE currencies into more mainstream, higher-beta CEE currencies. More specifically, we
take profits on our long CZK versus EUR trade at 24.18 (we entered at 24.49). While we
remain bullish the CZK in the medium run, we see limited scope for any significant
appreciation over the coming months given the potential for the CNB to disappoint the
Koon Chow+44 (0) 20 7773 7572
George Christou
+44 (0) 20 7773 1472
Tweaking our EEMEA FX
recommendations and adding a
mainstream long in the form of
the zloty
We close our long CZK vs EUR
trade due to downside risks in
the near term
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markets with regard to rate hikes (we look for the first hike in August of 25bp). In addition,
and against this backdrop, the currencys negative carry and lower beta will further deter
investors to scale up CZK exposure from these levels, we think.
In place of our CZK trade we enter into a tactical long PLN versus EUR cash position (target
3.85, stop 4.00). Several factors should offer the PLN some support in the coming weeks, we
think. First, there is plenty of catch-up potential when comparing PLN YTD performance
versus other CEE currencies. In addition, we expect privatisation/IPO flows to pick up in Q2
relative to Q1. One transaction that stands out is the sale of Polkomtel, which could be worth
up to $6.7bn and is expected to close before June (final bids are due on 6 May). This could
offer PLN significant support in the near term given that four out of the five bidders are foreign
private equity funds or telecoms companies that would need to exchange FX into PLN
(Reuters reports). Furthermore, the announcement that the MinFin will start to regularly
exchange EU related proceeds (in the range of EUR12-13bn) into local currency on the market
should also increase PLN appreciation pressures, we think. That said, we continue to remain
concerned about Polands medium-term challenges (fiscal risks, overall BoP health and the
ongoing credibility issues of the MPC in the face of increasing inflation). These challenges,
combined with the currencys high beta, will likely lead to a significant underperformance
relative to other EEMEA currencies in a tail-risk event or in an environment of general riskaversion. We therefore prefer to hedge our long PLN cash trade with a call/PLN put digital
option (strike 4.08, cost of 12%). As a worked example, if we assume a notional of EUR20mn
on the cash side and EUR1mn on the option notional, we earn a net profit of c.EUR0.4mn in a
scenario in which our 3.85 target is hit (spot profit of 0.5mn minus option cost of 0.12mn).
Assuming our more bearish scenario materialises, our ITM digital option earns a net profit of
c.EUR0.6mn (assuming a stop of 4.00 on the cash side). Our maximum loss occurs at our cash
stop of 4.00 (c.EUR0.4mn).
Elsewhere in CEE FX space we remain happy to hold our existing trades documented in The
Emerging Markets Quarterly, 22 March 2011. Hungarys solid BoP numbers combined should
offer further support in the near term for the HUF, we think. We continue to prefer to express
our bullishness through an RV trade versus the TRY (see below). In addition, we still like ourtwo carry trades - long RSD versus EUR 6M NDF trade (currently 10% NDF implied yield) and
our long RON carry trade (via 6M T-bills FX unhedged, currently 6%). In Serbias case the likely
continuation of the central banks aggressive rate hiking cycle in the context of rising inflation
should be supportive of further appreciation, while for Romania, a shrinking current account
deficit and the reserves buffer of a precautionary SBA should all help to exert further gradual
appreciation pressure. We look for EUR/RON to reach 4.00 by year-end. Intervention risks due
to competitiveness concerns remain a key risk for both our carry trades, however.
Oil currency trades in EEMEA the haves and have nots
The Barclays Capital view is that Brent prices will average $112 this year, which means that,
with current prices at $122, the remainder of 2011 is likely to see a softening in prices.
However, our commodity research colleagues warn of near-term upside risks to prices
related to possible supply disruptions and investment inflows to energy instruments. From
an FX perspective the most obvious implications are for the floating/managed currencies of
oil producers Russia and Kazakhstan. Although RUB has been the better performer YTD and
CBR is significantly more acquiescent towards currency flexibility than the National Bank of
Kazakhstan, we feel more comfortable sticking with a KZT long rather than getting into RUB
longs at this late stage. Speculative positioning in RUB is a challenge and structural private
capital outflows from Russia remain sizeable and could unseat the rouble if oil prices were
to ease back (not our baseline scenario). The KZT, by contrast, has marginally fewer
Catch-up potential,
IPO/privatization flows and on-
market EU transfer conversions
are positive PLN in the near term
We enter into 1m tactical longPLN vs EUR cash position hedged
with a digital option given
Polands challenges
We remain happy with our
relative value bullish HUF trade
vs TRY
We also continue to hold our
RON and RSD carry trades
Elevated spec positioning and
structural private outflows make
us sceptical about RUB as an oil
beta trade
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positioning risks and the overall BoP is in stronger shape. The relatively cheap level of the
KZT versus RUB (a key trading partner currency for Kazakhstan) supports our view of a 3-
5% annualised appreciation rate of KZT appreciation against the dollar and importantly,
with low downside risks if oil prices correct.
Turkey remains the most vulnerable to further oil price increases given the high level already
reached on the current account balance (see Figure 2). On a 12-month rolling basis the
deficit is nearly the equivalent of 7.9% of GDP and the deterioration is in contrast to the restof EEMEA where the pull of demand for exports has offset the higher oil import bill. The size
of Turkeys C/A and the reliance of financing on portfolio flows, offshore borrowing and
asset repatriation flows make us nervous on TRY (see Figure 3). Granted, the positive beta
backdrop will likely continue to offer up capital inflows to finance this C/A deficit, hence,
our early forecasts of a sharp fall (by mid-year) in the lira seem inappropriate. But the
negative tail risks on the lira remain meaningful and as a result, we wish to keep our hedged
bearish trades, albeit with some slight modifications. We stick with short TRY versus HUF
given the contrasting BoP health of Turkey versus Hungary. We modify our USD call/TRY
put to less ambitious strikes (1.60 and 1.70 for 3m against our previous strikes of 1.65 and
1.75. The new structure has a max net payout-to-cost ratio of 5:1).
What if we are wrong about these beta factors?
We are turning more constructive on EEMEA currencies; however, peripheral European risks
are likely to continue to linger with investors periodically nervous about the possibility of de-
leveraging flows from the Emerging Europe banking system. In a scenario of a flare up in
contagion something more akin to the experience in May 2010 than this year our CE
currency cash longs (PLN, RSD and, to a lesser degree, RON) are likely to come under
depreciation pressure, especially the more liquid ones, given the ease of portfolio outflows
there. However, while our bullish recommendations would come under pressure and maybe
stopped out, some of our hedges could do very well (TRY/HUF, given the challenging C/A
financing metrics in Turkey and our PLN option digital hedge). Our short EUR/long ILS
recommendation would probably do even better in this scenario. Our baseline view is that
the convergence of a structural C/A surplus and an aggressive hiking cycle in Israel shouldbe pushing ILS higher anyway against the EUR. Although the ILS has done well against the
USD, it is still at competitive/cheap levels versus the EUR. A serious flare-up in peripheral
European risks would probably hit EUR a lot more than ILS.
Turkeys C/A deficit and reliance
on portfolio flows, offshore
borrowing and asset repatriation
make us nervous on the lira
We stick with our long KZT
trade recommendation
We keep our short TRY vs HUF
trade and adjust the strikes on
our TRY put spread
Peripheral Europe risks have not
gone away
While our liquid cash longs may
suffer in a tail-risk event our
TRY/HUF and PLN digital option
hedges are likely to perform
Figure 2: Strong external demand trumps oil so far in termsof the C/A balances
Figure 3: but Turkeys deficit is still large and the sourceof financing in the BoP is risky
-10
-5
0
5
10
2007 2008 2009 2010
CE Russia Turkey
Israel S.Africa
% GDP
-2
0
2
4
6
8
10
Turkey
SA
Russia
Israe
l
Czec
hR
.
Po
lan
d
Hungary
Net FDI Net portfolio Net other Assets & liab.
% GDP
Source: National Statistics Offices, Barclays Capital Source: IMF, Haver Analytics
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STRATEGY FOCUS: SINGAPORE
Updating our SGD NEER model
This is an excerpt from Singapore: Updating our SGD NEER model, 5 May 2011.
We have recalibrated our SGD NEER model in light of the release of updated historicaldata from the MAS. We expect the SGD NEER to remain above the midpoint of the index
through to year-end and now forecast USD/SGD to fall to 1.19 in 12m.
Our in-house SGD NEER model has been updated following the release of the SGD NEER
weekly data up to 8 April 2011 by the Monetary Authority of Singapore (MAS). The
modified weights inferred econometrically from the official data are shown in Figure 1.
Based on this analysis, we estimate that the SGD NEER was re-centred by 150bp, consistent
with the MASs message that: The exchange rate policy band will be re-centred below the
prevailing level of the SGD NEER. Our analysis suggests that the slope was left unchanged
at 3.5%, maintaining the steepening from the 2.5% applied in October 2010. We also
estimate that the policy band was left unchanged at +/-2.0%. After the update, we have
reduced the average deviation between our NEER model and the MASs data to close to 2bpfor the past six months.
Refreshing our econometric analysis entails changes to some of the weights in our SGD NEER
model. We estimate that the USD weight has fallen by 0.9pp to 27.9%. The largest change was
the TWD weighting, which we estimate rose by 1.6pp to 4.5%. Other notable changes
included the INR (-0.7pp to 0.4%), MYR (-0.4pp to 13.4%) and KRW (+0.2pp to 3.5%).
Figure 1: Updated SGD NEER model weightings largely unchanged
Versus SGD Broad 13-currency index
New weights Old Net change (pp)
USD 27.9% 28.8% -0.9MYR 13.4% 13.8% -0.4
EUR 11.0% 11.2% -0.2
CNY 9.7% 9.4% 0.3
JPY 9.4% 9.3%
THB 5.6% 5.5% 0.1
IDR 5.6% 5.8% -0.2
KRW 3.5% 3.3% 0.2
AUD 3.8% 3.6% 0.2
TWD 4.5% 2.9% 1.6
GBP 3.3% 3.3% 0.0
INR 0.4% 1.0% -0.7
PHP 2.0% 2.0% 0.0
Note: 1) we use principal-components analysis to determine t he weights for each currency in the SGD NEER basket.Source: Bloomberg, Barclays Capital
Wai Ho Leong
+65 6308 3292
Rahul Bajoria
+65 6308 3511
Nick Verdi
+65 6308 3093
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SGD to remain above the midpoint of the band
Between now and the October 2011 MAS policy meeting, we expect upward pressure on
the SGD to continue with the NEER remaining above its midpoint. This is consistent with
our view of generalised USD weakness through the remainder of the year. Our USD view
is predicated on our expectation of no policy tightening in the US before Q3 12, in
contrast to rate hikes elsewhere. In the run-up to the April MPC, we think the MAS
intervened frequently in the market as the SGD NEER skirted the upper part of its band.This is supported by data on FX reserves and the forward book, with intervention heaviest
in March and April, when FX reserves rose by USD16bn and USD22.7bn, respectively, to
an estimated USD356.8bn (see Figures 3 and 4).
We expect the SGD NEER to drift 75-100bp above the midpoint over the next three months.
In 6m, we expect the NEER to trade 100-125bp above the midpoint as markets price in
further currency appreciation. At the October monetary policy meeting, we expect MAS to
narrow the band back to +/1.5% as it becomes increasingly confident in the pace of
currency appreciation without requiring the insurance of a wider band. Based on our
forecasts for other currencies and assuming that the 3.5% slope in the SGD NEER remains
in place, we look for USD/SGD to drift lower to 1.19/USD in 12m, within an estimated range
of 1.177-1.213.
Figure 2: USD/SGD exchange rate forecasts
Spot 1m 3m 6m 12m
SGD NEER Mid 116.43 116.77 117.46 118.49 120.51
Implied forecast mid 1.23 1.23 1.21 1.19
Implied forecast bottom 1.26 1.25 1.23 1.21
Implied forecast Top 1.21 1.20 1.20 1.17
Forecast 1.225 1.215 1.200 1.190
Source: Barclays Capital
We expect upward pressure on
the SGD NEER to continue
Figure 3: SGD NEER likely to trade in top half of the band Figure 4: Strong reserve accumulation in the near term
102
104
106
108
110
112
114
116
118
120
Apr-07 Apr-08 Apr-09 Apr-10 Apr-11
MAS official NEER Updated Barclays Broad index
100
150
200
250
300
350
Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11
98
100
102
104
106108
110
112
114
116
118
Net fwd positionForeign reservesMonthly Average SGD NEER (Index, RHS)
USDbn
Source: MAS, Bloomberg, Barclays Capital Source: MAS, CEIC, Barclays Capital
USD/SGD to maintain its
downward trajectory; we now
expect the SGD to appreciate to
1.19/USD in 12m
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A relatively measured response from MAS in April MPC
For now, we see the balance of risks as still tilted towards inflation, albeit slightly. The recent
MAS statement was interesting for two reasons. First, the re-centring suggests that the
MASs assessment of inflation risks is more immediate than we had expected MAS noted
in its policy statement that: "factor markets are tight, domestic cost and price pressures will
remain firm". We estimate the re-centring to be about 1.5%. While MAS has acknowledged
that the increase in inflation in Q1 was largely due to a sharp rise in COE premiums, this
distortion will fade as base effects dissipate. It expects wage pressures to build up amid a
tight labour market, and the pass-through into services costs and core could intensify in the
months ahead. For the whole year, the MAS continues to expect inflation to be in the upper
half of its 3-4% forecast range and core inflation to be 2-3%.
Second, the re-centring to a level below the prevailing level of the midpoint was an
unprecedented step. We believe this reflects a greater sense of caution over the tail risks to
growth and a desire to avoid excessive strength in theSGD. Even as the government hasexpressed greater comfort with the present path of growth, we believe this reflects the
robust expansion in Q1. A factor of comfort was the stronger performance of Q1 GDP
which grew 23.5% at an annualised q/q pace (up from 3.9% in Q4 last year). We think this
likely contributed to the central bank's expectation that momentum will remain strong in
the coming quarters, even as headline readings moderate. We see a possible contraction in
output in Q2, on a likely downside surprise in pharmaceutical output. The abnormally high
base in the pharmaceutical IP index over Q2 10 is likely to depress headline IP this year.
A measured response from
MAS in April policy should help
to anchor inflation expectations
Figure 5: Pass-through into services costs accelerating Figure 6: Core price pressures rising
-2%
0%
2%
4%
6%
8%
Mar-08 Mar-09 Mar-10 Mar-11
Domestic oriented services Transport Food
-2
0
2
4
6
8
Mar-05 Mar-07 Mar-09 Mar-11
-4
-2
0
2
4
6
8
10
Core inflation (% y/yCore inflation (% 3m/3m, saar, RHS)
-2
0
2
4
6
8
Mar-05 Mar-07 Mar-09 Mar-11
-4
-2
0
2
4
6
8
10
Core inflation (% y/yCore inflation (% 3m/3m, saar, RHS)
Source: CEIC, Barclays Capital Source: CEIC, Barclays Capital
A re-centring below the
prevailing level reflects caution
over tail risks to growth
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STRATEGY FOCUS: CHILE
Fine-tuning our monetary policy call
This is an excerpt from Chile: Fine-tuning our monetary policy call, 4 May 2011.
Marginally more dovish communication from Chiles policymakers leads us to nowexpect the central bank to deliver a 25bp hike on 12 May (previously 50bp) and pencil in
a pause at 5.0% (previously a steady normalization to 5.5%).
In the past few days, communication from fiscal and monetary authorities has been turning
marginally away from the free-floating, inflation-focused tone prevailing since early February.
Last week, Minister of Finance Felipe Larrain said the government was not going to sit idly by
during FX appreciation. This morning, the Central Bank Chief Economist Luis Herrera said lower
global rates may push down neutral Latin rates. This followed minutes from the 12 April
monetary policy meeting, published on 28 April, that carried a relatively more dovish tone, in
our view.
We think that with the Chilean peso having appreciated significantly and after 125bp of
progress in the normalization process, the sense of urgency inspiring monetary policy
decisions since February has seemingly begun to fade. Concerns about FX strength, in turn,
appear to have ticked up. In the most recent minutes, one board member said it was evident
that, as the normalization proceeded, the remaining required adjustments of the policy rate
would be lower. The minutes also concluded with the notion that the neutral policy rate
(estimated to be 5.1-6.5% for Chile) reflected a condition of internal equilibrium but could
imply an external disequilibrium when international rates were not near their neutral levels.
This notion alludes to the paradigm outlined last year (Chile: All Doves Day, 2 November
2010), which was eventually followed by the announcement of an FX-intervention package
and a pause in the tightening cycle in January. Although we suspect the central bank will
take care to avoid the sort of market punishment endured after its intervention-pause
combo, its most recent language suggests a less aggressive normalization pace in the nearterm and possibly a terminal rate on the lower end of the range considered neutral.
Accordingly, we now expect the central bank to deliver a 25bp hike on 12 May instead of
the 50bp we expected previously. Moreover, we now pencil in a pause at 5.0% instead of
the steady normalization to 5.5% we expected before. Although we think the central bank
will eventually bring the policy rate more clearly within its neutral range (we pencil in fine-
tuning 25bp hikes in September and December), this updated near-term outlook suggests
some tactical value in the very front end of the curve. In contrast, it caps the upside
potential of our recommendation to sell 5y breakeven inflation, which we had based on the
decisiveness of the central bank to control inflation (Chile: Dont stop believin, 8 March
2011); we recommend investors reduce or take profits on the position.
Would less urgency be justified?
Following the methodology outlined in Mexico: Taylor (does not) rule, 28 April 2011, we
assess the current monetary policy stance against the prescriptions of a Taylor rule. As a
reminder, in that report we estimated a Taylor rule equation using actual inflation in one
specification and expected inflation in another. Here we consider a third specification
incorporating FX changes. Figure 1 shows the results of the estimated parameters.
Jimena Zuniga+1 212 412 5361
Recent communication points to
a more dovish stance
showing less sense of urgency
on the inflation front and higher
FX concerns
This resembles the situation in
late 2010
leading us to expect a less
aggressive monetary policy path
We assess Chiles stance against
a Taylor rule
https://live.barcap.com/go/publications/content?contentPubID=FC1708393https://live.barcap.com/go/publications/content?contentPubID=FC1649878https://live.barcap.com/go/publications/content?contentPubID=FC1689720https://live.barcap.com/go/publications/content?contentPubID=FC1706176https://live.barcap.com/go/publications/content?contentPubID=FC1706176https://live.barcap.com/go/publications/content?contentPubID=FC1689720https://live.barcap.com/go/publications/content?contentPubID=FC1649878https://live.barcap.com/go/publications/content?contentPubID=FC1708393 -
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The main messages of these results are the following:
1. A Taylor rule provides a pretty good fit for the policy rate in Chile. As recommended bythe Taylor rule, the central bank is responsive to both the output gap and deviations of
inflation from the target.
2. The central bank is forward looking, responding more to deviations in inflationexpectations from the target than to deviations of actual inflation from the target.
3. The central bank is about as responsive to the output gap and to deviations in inflationexpectations from the target as a Taylor rule recommends.
4. The central bank is somewhat responsive to FX changes, though adding FX changes tothe expectations-based specification does not increase the explanatory power of the
regressor group significantly.
5. The implied value for the neutral policy rate in Chile seems too low, highlighting thateven if the central bank has been about as responsive to the Taylor rule inputs as the
rule would indicate, it has not necessarily been as hawkish.
Figure 1: Taylor rule estimates for Chile
Specification 1: Using actual
inflation
Specification 2: Using inflation
expected in 12 mth
Specification 3: Using expected
inflation and FX
Variables Coef. p value Coef. p value Coef. p value
Real rate + target 3.49 0.000 3.42 0.000 3.63 0.000
Output gap 0.27 0.000 0.40 0.000 0.47 0.000
Inflation gap 0.55 0.000 1.54 0.000 1.38 0.000
FX ann. change (lagged) --- --- --- --- 0.05 0.000
Adjusted R2 0.81 0.69 0.76
Observations 99 100 100
Note: Sample period: January 2003-present. Source: Barclays Capital
Figure 2: Policy rate versus Taylor implied(using the parameters estimated for Chile)
Figure 3: Policy rate versus Taylor implied(using Taylors recommended parameters)
4.5
3.6
5.04.6
-2
0
2
4
6
8
10
Jan-03 Jul-04 Jan-06 Jul-07 Jan-09 Jul-10Policy rate Taylor-implied*
Taylor-impl ied** Taylor -implied***
%
4.5
5.25.5
0
2
4
6
8
10
12
Jan-03 Jul-04 Jan-06 Jul-07 Jan-09 Jul-10
Pol icy rat e Taylor-i mpl ied* Tayl or-impli ed**
%
Note: *using actual inflation; **using expected inflation; ***using expectedinflation and FX changes. Source: Barclays Capital
Note: We assume a conservative neutral real rate of 2%; *using actual inflation;**using expected inflation. Source: Barclays Capital
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Figure 4: BCCh could justify a relatively low terminal rate Figure 5: Taylor inputs
4.50
5.2
5.2
-1
0
1
2
3
4
5
6
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11
Policy rate Taylor-implied**
Taylor-implied***
%
Based on BarCap
forecasts
-5%
-3%
-1%
1%
3%
5%
Jan-03 Jul-04 Jan-06 Jul-07 Jan-09 Jul-10
-5
-3
-1
13
5
7
9
11
Out put ga p Infla ti on, R HS
%
BarCap
forecasts
Note: Based on Chiles estimated parameters; **using expected inflation;***using expected inflation and FX changes. Source: Barclays Capital
Source: Haver Analytics, Barclays Capital
The results also indicate that, at 4.5%, the policy rate is broadly in line with what a Taylor
rule would indicate, at least when relying on the parameters estimated for the Chilean
economy (Figure 2), if not the ones recommended by Taylor (Figure 3). In particular, the
current monetary policy stance seems a little dovish relative to the prescriptions of an
expectations-based Taylor rule, yet adequate relative to the prescriptions of an FX-
augmented rule. By contrast, just after the central banks January pause, the policy stance
seemed to unambiguously lag what a Taylor rule recommended. This supports our view
that the central banks sense of urgency vis vis the normalization of the policy stance has
probably diminished.
Interestingly, incorporating our real GDP growth forecast for this year (6.4%), our neutral
view on the USD/CLP at 460, and assuming no further deterioration in inflation
expectations, the Taylor-implied policy rate would not increase tremendously in the coming
months (Figure 4.) This suggests that, even though we view our revised monetary policypath as potentially risky for the inflation outlook, such a path would be defensible.
Measured against a Taylor rule,
the policy stance seems
adequate to a little dovish
and suggests our revised
monetary policy path, while
potentially risky, could
be defensible
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EM DASHBOARD
George Christou +44 (0)20 777 31472 [email protected]
Alanna Gregory 212 412 5938 [email protected]
Description Entry date Entry Current Target Stop
P&L to target/
P&L to stop Analyst
Credit (13)
Buy Philippines 5 Yr CDS 28-Apr-11 128bp 128bp 140bp 123bp 2.4 Hegde, Save
Long PDVSA 17 New 28-Apr-11 72 71 78 67 1.75 Arreaza, Cruz, Grisanti, Guarino
Sell Brazil Buy Mexico 10yr CDS 04-Apr-11 15bp 3.8bp -5bp 30bp 0.34 Guarino, Zuniga
Hungary 2s7s CDS steepener (DV01-neutral) 28-Mar-11 68bp 91bp 100bp 75bp 0.56 Kolbe
Buy Poland 5y CDS vs CEEMEA SovX index 22-Mar-11 60bp 42bp 30bp 70bp 0.43 Kolbe, Hewitt
Buy Tunisia 5y CDS/Sell Morocco 5y CDS 22-Mar-11 5bp -4bp 50bp -30bp 2.08 Kolbe, Moubayed
Long Boden 15 22-Mar-11 700bp 673.9bp 600bp 800bp 0.59 Guarino
Long Boden 15 Buy 5yr CDS 22-Mar-11 110bp 88.8bp 30bp 120bp 1.88 Guarino
Long Ghana 17s 22-Mar-11 427bp 365bp 300bp 375bp 6.5 Kolbe, Markus
Buy Russia 5y CDS 16-Mar-11 138bp 128bp 170bp 110bp 2.33 Kolbe
Buy Peru 5yr CDS Sell Brazil 5yr CDS 04-Mar-11 -5bp 37.9bp 100bp 26bp 0.33 Melzi, Guarino
Long Ukraine 13s 07-Dec-10 525bp 336bp 300bp 400bp 0.56 Kolbe
Long Argentina EUR Warrant 06-Jun-10 6.05 14 16 9 0.23 Guarino, Mondino
FX (17)
Buy 1M EUR call/PLN put digital (strike 4.08) 04-May-11 3.95 - 4.08 - 8.6 Chow
Buy 3M USD call/TRY put spread (1.60, 1.70) 04-May-11 1.55 1.54 1.75 - 0.14 Chow
Sell EUR/PLN 04-May-11 3.95 3.95 3.85 4 1.67 Chow
Buy 1m one-touch USD/INR option with a trigger at 28-Apr-11 9% 6.4% 100% 0% 14.63 Verdi
Buy 2m USD/IDR calls with an 8950/USD strike 28-Apr-11 0.42% 0.33% 4% 0% 11.12 Verdi
Buy 1x1.5 USD/TWD put spread (strikes 28.85 and 28 26-Apr-11 0.14% 0.41% 1.1% 0% 1.68 Verdi
Sell 9m CNY NDF 26-Apr-11 6.37% 6.35% 6.25% 6.5% 0.71 Verdi
Buy USD/MYR put spread (strikes 3.0237 (ATM) and 2 11-Apr-11 0.22% 1.27% 2.4% 0% 0.89 Verdi
Sell USD/BRL 07-Apr-11 1.6 1.61 1.5 1.67 1.83 Loureiro, Melzi, Salomon
Buy SGD vs EUR(60%)-USD(40%) basket 22-Mar-11 100 101.4 101.8 98.5 0.14 Verdi
Long RON via 6M Tbills FX unhedged 22-Mar-11 4.16 4.11 4 4.16 2.2 Chow, Chwiejczak
Sell EUR/ILS 22-Mar-11 5.01 5 4.8 5.1 2 Chow
Sell EUR/RSD 6M NDF 22-Mar-11 103 99 95 105 0.67 Chow
sell TRY/HUF 22-Mar-11 121 117 107 127 1 ChowSell USD/KZT 6M NDF 22-Mar-11 146 145.6 141 147 3.29 Chow
Long USD/PEN 18-Mar-11 2.78 2.82 2.85 2.78 0.75 Melzi,Grisanti
Long Ghana 3y bond (FX unhedged) 07-Dec-10 13% 12.4% 9% 16% 1.15 Markus
Rates (9)
Indonesia 5x20 flattener 14-Apr-11 235bp 191bp 180bp 265bp 0.15 Rachapudi
CZK 2s10s IRS dv01 flattener 22-Mar-11 105bp 110bp 70bp 120bp 4 Chwiejczak
Pay 1y KRW IRS 22-Mar-11 3.68% 3.79% 3.85% 3.58% 0.29 Rachapudi
Pay TRY CCS 1y1y FWD 22-Mar-11 8.34% 8.4% 9% 8% 1.5 Chwiejczak
Receive ZAR 1y1y fwd 22-Mar-11 7.6% 7.4% 7% 8% 0.67 Chwiejczak
Pay 1y INR OIS 20-Mar-11 7.4% 7.81% 8% 7.6% 0.9 Rachapudi
Long Jul20 local TES 18-Mar-11 8.15% 8.19% 7.75% 8.5% 1.42 Melzi
Receive Jan15 Pre-Di 18-Mar-11 12.79% 12.62% 12.2% 13.35% 0.58 Melzi
Pay 5y PLN IRS 07-Dec-10 5.4% 5.61% 5.85% 5.4% 1.14 Chwiejczak
Closed Trades (9)Buy USD put/ILS call Bfly (3.70,3.60,3.55 strikes) 22-Mar-11 3.53 3.4 - - 05-May-11 Chow
Buy USD/TRY put spread (1.60, 1.70 strikes) 21-Apr-11 1.52 1.54 - - 05-May-11 Chow
Long PDVSA 14 14-Mar-11 70 75.08 80 65 05-May-11 Cruz, Grisanti, Guarino, Arreaza
Sell 10yr Brazil Basis (BR2021 vs 10yr CDS) 16-Feb-11 45bp 17.8bp 25bp 55bp 05-May-11 Guarino
Sell 5y BEI Chile 08-Mar-11 3.88% 3.53% 3.35% 4% 04-May-11 Melzi,Zuniga
Sell EUR/CZK 22-Mar-11 24.49 24.2 23.9 24.6 04-May-11 Chow
Buy 3m atmf USD/KRW put with RKO at 1070 22-Mar-11 0.75% 0.25% 5.39% 0% 02-May-11 Verdi
Pay 1y1y Fwd TIIE 18-Mar-11 6.54% 6.22% 6.9% 6.2% 28-Apr-11 Melzi
Short USD/CLP 18-Mar-11 481.35 460.82 460 487 28-Apr-11 Melzi, Zuniga
Note: As of 04-05 May 2011 (trades are updated regionally). Methodology: P&L to target/P&L to stop is a measure of how much can be gained relative to how muchcan be lost. Both are calculated from the current value and reported in dollars. This measure does not take probabilities into account. Source: Barclays Capital
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FX VIEWS ON A PAGE
Currency
Tactical
bias Strategic directional view
Current strategy/
trades we like
Vol adj
6m
returns
Score
(1-5)
Emerging Asia
MYR Bullish Stronger growth, rising commodity prices, a healthy fiscal
position, and improved equity flows should lend supportto the currency.
Buy 3m USD/MYR put
spread with strikes 3.0237(ATM) and 2.94 and sell 3mUSD/MYR calls (strike: 3.07)
0.41 4.10
THB Bullish We expect the THBs recent underperformance to reverse.A robust economy and a strong external position arelikely to support modest THB appreciation.
0.32 3.90
KRW Bullish We believe still-sizeable current account surpluses and apreference to contain imported inflationary pressures willsee USD/KRW move towards 1025 by year-end.
0.29 3.55
CNY Bullish We expect the USD/CNY to move lower as the authoritiesreact to elevated inflation.
Sell 9m CNY NDF0.19 3.35
PHP Bullish We have slightly lowered our BoP surplus forecast. Inaddition, the central bank likely believes the REER is close
to fair value. We expect a modest move lower inUSD/PHP towards 41.5 by year-end.
0.24 3.20
INR Bullish The INR remains fairly well supported near term in thecontext of wider currency appreciation in the region,despite medium-term issues related to weak BoP dynamics.
Buy 1m one-touch USD/INRoption with a trigger at42.85/USD
0.14 3.15
HKD Neutral Increasing CNY deposits onshore may result in theRMB-isation of the economy.
-0.06 3.00
SGD Bullish The MASs concern relating to near-term inflationpressures is likely to support the SGD NEER.
Buy USD-EUR basket (60%-40%) versus SGD outright
0.14 2.80
TWD Bullish USD/TWD has moved sharply lower in recent weeks. Wethink the currency will drift towards the 28.5/USD levelover the next 1m.
Buy 1x1.5 USD/TWD putspread (strikes 28.85 and28.45) and sell a USDcall/TWD put (strike 29.5)
-0.08 2.60
IDR Bearish A shrinking current account surplus and high valuationon a REER basis point to IDR underperformance.
Buy 2m USD/IDR calls withan 8950/USD strike
-0.08 2.35
Latin America
PEN Bearish Politically related volatility is likely to continue during thenext few weeks. The final outcome of elections is stillunclear.
Buy 1m USD/PEN NDF0.19 3.60
BRL Bullish We target 1.50 in 3m as fundamentals are supportive andthe government acknowledges limitations of FXintervention.
Sell USD/BRL0.42 3.35
CLP Neutral Supportive fundamentals: strong domestic demand,hawkish monetary policy and bright outlook for copperprices. Government has increased FX interventionrhetoric.
0.23 3.10
MXN Neutral Improving domestic demand and US activity aresupportive, but it is hard to see a shift lower in USD/MXNunless Banxico signals a more aggressive monetary policystance than what is priced in. Positioning is overextended,in our opinion.
0.12 2.50
COP Neutral Supportive fundamentals (oil prices and monetary policynormalization), but FX intervention limits downside forUSD/COP.
0.10 2.05
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Currency
Tactical
bias Strategic directional view
Current strategy/
trades we like
Vol adj
6m
returns
Score
(1-5)
Emerging EMEA
RON* Bullish Improving C/A deficit plus prospects of further FX saleargue for, at worse, a stable RON. However, yields have,fallen due to capital inflows.
Buy 6m T-bills (6.7%indicative yield) FXunhedged
0.32 3.80
EGP Neutral Less uncertainty about the transition process may limitcapital flight, but the challenge facing the economy leavesno room for a stronger EGP.
0.60 3.55
PLN* Bullish M/t challenges remain in the Polish BoP but near-termtechnical positives (sale of EUR by the ministry of financeand privatisation flows) can trigger near-term zloty gains
Short EUR/PLN, Buy as a tail-risk hedge, 1m 4.08 digitial 0.29 3.15
HUF* Bullish A C/A surplus and a credible central bank stancecontinue to offset investor uncertainty on fiscal policy.Potential asset repatriation flows and the resumption ofeuro-linked lending are positive flows risks.
Sell TRY/HUF
0.16 3.05
ILS Bullish The terminal level for policy rates in the Israel hiking cyclehas likely risen. This, together with a structurally robustIsraeli BoP, should keep investors engaged in long ILS.
Short EUR/ILS0.13 2.65
TRY Bearish Historically low nominal yields are likely to feed thealready-large C/A deficit, making external funding harderas well. We expect a difficult Q2, with relief likely onlytowards year-end after a policy adjustment.
Buy USD call/TRY putspread, 3m, 1.60-1.70strikes, sell TRY/HUF
-0.18 2.40
CZK* Neutral The solid macro balances and tightening rate cycle shouldeventually push CZK higher. But with rising risk appetite,other higher beta currencies are likely to outperform
0.12 2.20
RUB Bullish Oil windfall is likely to keep the RUB well bid. However,structural capital outflows and the election cycle argue formore challenging times later this year.
-0.08 2.05
ZAR Neutral High commodity prices and a likely return of someportfolio flows on high real/nominal yields should provideenough capital inflows to fund the (modest) C/A deficit.
-0.17 1.70
UAH Neutral Depressed yields leave the UAH more exposed,particularly as the best of the capital inflows/de-dollarisation process are behind us.
KZT Bullish Kazakhstan benefits hugely from high oil prices, and thecentral bank has said it expects some appreciation,suggesting continued managed appreciation.
Sell USD/buy KZT through6m NDF
Note: * Versus EUR. The variable score is an index that ranks EM currencies according to the vol-adjusted returns, PPP valuation, carry, systemic risk, basicbalance/GDP and reserves accumulated over the past 5y/GDP. For more details on the trade recommendations, please see the EM Dashboard.Source: Barclays Capital
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DATA REVIEW & PREVIEW: ASIA
Rahul Bajoria
Review of last weeks data releases
Main indicators Period Previous BarCap Actual Comments
China: PMI manufacturing Apr 53.4 54.2 52.9 Core prices continue to tick higher.
Korea: Exports (% y/y) Apr 30.3 24.6 26.6 Momentum in shipments remains robust.
Korea: CPI (% y/y) Apr 4.7 4.8 4.2 Lower food prices push inflation down, but core up.
Indonesia: CPI (% y/y) Apr 6.7 6.4 6.2 Inflation lower on better harvest, but core rose.
Thailand: CPI (% y/y) Apr 3.1 3.3 4.0 Strong upside surprise due to higher vegetable prices.
India: RBI: Repo rate (%) 6.75 7.00 7.25 A more decisive move from RBI amid rising inflation.
Bangko Sentral ng Pilipinas (%) Apr 4.25 4.50 4.50 We expect another 25bp rate hike from the BSP in July
Preview of week ahead
Monday 9 May Period Prev 2 Prev 1 Latest Forecast Consensus
16:00 Taiwan: Exports (% y/y) Apr 16.6 27.3 16.7 19.0 17.5
Taiwan: A positive monthly uptick likely on the back of strong momentum in electronics exports.
Tuesday 10 May Period Prev 2 Prev 1 Latest Forecast Consensu
09:00 Philippines: Exports (% y/y) Mar 16.6 27.3 16.7 9.0 7.5
10:00 China: Exports (% y/y) Apr 37.7 2.4 35.8 28 29.5
10:00 China: Imports (% y/y) Apr 51.2 19.6 27.3 28.5 28.9
Philippines: Exports to slow on less favourable pricing environment and possible activity disruption caused by earthquake in
Japan.
China: We expect export and import growth to moderate somewhat but remain strong. Trade balance to post a small surplus.
Wednesday 11 May Period Prev 2 Prev 1 Latest Forecast Consensus
07:00 Korea: Unemployment rate (%) Apr 3.6 4.0 4.0 3.8 3.8
10:00 China: CPI (% y/y) Apr 4.9 4.9 5.4 5.2 5.2
10:00 China: PPI (% y/y) Apr 6.6 7.2 7.3 7.1 7.0
10:00 China: Fixed asset investment (YTD, % y/y) Apr 24.9 24.9 25 24.8 24.9
1