GEMs Macro Monthly Yellen can wait

Redacción - Jueves, 28 de Agosto

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Macro: end of summer tailwinds Although the risks are for an earlier first Fed hike, we believe this is still a year out. In the meantime, we remain constructive on EM. Our models show that activity is holding up well, while liquidity conditions have improved so far in 2014. Continued stimulus measures in China, the lack of monetary tightening pressure in most economies, and improving export growth should allow for improving momentum in 2H14. We continue to forecast 2014 GDP growth of 4.5%. 

Local Markets: our top trades 

We are neutral on EMFX and still like DNT options in USD/BRL, short EUR/KRW and tactical RUB longs. In rates, we like payers in Korea (5y), Malaysia (5y), and Chile (6m), linkers in Brazil and receiving the 10y Hungary/Poland spread. 

EXD Strategy: capital inflows support EXD 

We remain cautiously optimistic on EXD. Liquidity conditions remain supportive with US rates low and the potential for quantitative easing in Europe. However, we acknowledge interest rate risks in the US as QE ends and persistent (?) volatility in US high-yield corporates. Tension in Ukraine and the Middle East remain a risk. 

Corp Strategy: expect HY to outperform 

EM IG corps bounced back in August while EM HY continues to fall thanks to weakness in Argie, Venie, & Ukraine. We think the market will tighten further from here in the near term and expect HY corps to outperform IG. 

Equity Strategy: a bullish mix 

We see 5 reasons for turning more bullish on EM equities. China's SOE reforms; lower US yields; equity sentiment indicators in mild panic; EPS expectations have been cut, EM EPS revisions are up; and lower financial vulnerability.

 

Chart of the Month: Real money investors are taking less risk relative to benchmark

*Question asked - How has the risk of your portfolio changed relative to benchmark in the last month?. Source: BofA Merrill Lynch Sentiment Survey 

Please see full report for further details... 

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