- •Will 2019 be another difficult year for EM?
- •When will EM equities begin a decent rally; what support is required?
- •Is there a case for local-currency debt over hard-currency debt?
- •Positives to rely on; developments to be warned of
- •Key messages
- •Signposts and triggers for change
- •Pictures that tell the story
- •Overview of EM asset calls
- •EM growth challenges return
- •Late cycle is not kind to EM, but no blow-ups this time
- •Equities: Cheapening as expected, amid tighter liquidity
- •Box 1: What do asset, product and labour markets tell us about the stage of the economic cycle?
- •Box 1: What do asset, product and labour markets tell us about the stage of the economic cycle? (continued)
- •Chinese equities better placed than many in EM
- •Currencies: Better total returns
- •Box 2: How far are we from capitulation in EM equities?
- •Box 3: How can investors overcome EM's weakest link – currencies?
- •Top trades for 2019
- •1. Long China A-shares vs EM ex China, Long USDCNY
- •2. Long MSCI EM Value vs MSCI EM Growth
- •3. Long 10y Indian government bonds vs MSCI India
- •5. Long G3 currencies vs KRW
- •6. Long CZK vs ZAR
- •7. Long 10y Russia OFZ, long RUBCAD
- •8. Long NTN-F 2025, Long BRLCOP
- •9. Receive 2Y Mexico TIIE rates
- •China (too) makes difficult choices now
- •Box 4: Can a more globally accepted CNY help fund a potential deficit in China?
- •Box 5: How sensitive are global assets to a weaker CNY?
- •Box 5: How sensitive are global assets to a weaker CNY? (Continued)
- •Equities: Probing what is cheap and why
- •The 'where and how' of EM being cheap – taking a lens to EM multiples
- •The consensus and reality on earnings
- •Our bottom-up numbers agree with the top-down
- •Understanding the size, sector and country reads
- •Box 6: Can Indian equities find their groove?
- •Can the consumption story recover?
- •Temporary liquidity squeeze or credit shock?
- •Box 6: Can Indian equities find their groove? (continued)
- •Have valuations adjusted enough for a re-examination?
- •Growth or Value?
- •Leading indicators suggest Growth heavyweights, consumer and tech, will remain under pressure for now
- •Box 7: Semiconductors: Where next for the fading 'Memory Supernova'?
- •A different size and nature of stimulus from China
- •Currencies: A shift in pressure points
- •That unravelled fast
- •Box 8: What reforms can we expect from Brazil?
- •Box 9: What is the collateral damage from China's inclusion in global indices?
- •A narrowing growth gap against DM still, but for different reasons
- •Can external balances, carry and valuation help EMFX withstand the relative growth challenges?
- •Box 10: Why is EM growth not benefitting from stronger US growth?
- •We find few currencies to be cheap enough to withstand further pressure.
- •The CNY will remain a source of volatility
- •Main risks to our views
- •Local rates: Buffered by term premia & real rates
- •Another challenging year ahead, but past worst
- •Has value been re-built?
- •Which markets are rich, and which are cheap?
- •Which local rates are sensitive to FX and credit?
- •Box 11: Which EM debt market is most vulnerable to slower portfolio flows?
- •Box 12: What will ECB and BoJ normalisation mean for EM assets?
- •Box 12: What will ECB and BoJ normalisation mean for EM assets? (continued)
- •Monetary policy expectations: what’s mispriced?
- •Curve shapes – where’s the alpha?
- •Box 13: Where is term premium in EM local currency debt?
- •Putting everything together
- •Credit: Help from more realistic risk premia
- •No large step adjustment due in EM credit
- •A modest widening amid weak growth is the base case
- •CNY volatility will mean greater pressure on EM corporates
- •Box 15: Will onshore defaults continue in China?
- •Political calendar
- •Performance of 2018 top trades
- •UBS FX & macroeconomic forecasts
- •Valuation Method and Risk Statement
vk.com/id446425943
Political calendar
Global Macro Strategy 19 November 2018 |
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Political calendar
Timeline
India
Legislative Assembly Election result of Rajasthan, 
Madhya Pradesh, Chhattisgarh and Telangana
Thailand
General elections
Ukraine
Presidential elections
India
Parliamentary elections
Philippines
11th Dec
2018
1st Jan 2019
Feb-May
2019
5th Mar
2019
31st Mar
2019
31st Mar
2019
Apr-May
2019
17th Apr
2019
|
13th May |
Midterm elections |
2019 |
|
23rd–26th |
South Africa |
May 2019 |
|
|
|
Before 4th |
Nationwide elections |
Aug 2019 |
|
11th Sep |
Colombia |
2019 |
|
|
|
25th Oct |
State and Municipal elections |
2019 |
|
26th Oct |
Argentina |
2019 |
|
|
President and Congress election |
27th Oct |
2019 |
|
|
27th Oct |
Poland |
2019 |
|
|
|
Oct-Nov |
Parliamentary elections |
2019 |
|
2020 |
Brazil
President and Congress term start
Brazil
Legislative agenda details formalized
Turkey
Local elections
Indonesia
Presidential and Parliamentary elections
EU
European Parliament elections
Argentina
Mandatory primaries
Indonesia
New Indonesia cabinet announced
Ukraine
Parliamentary elections
Poland
Presidential elections
Source: Public websites, UBS. For further details, please see UBS' Global Economic Outlook
Global Macro Strategy 19 November 2018 |
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Performance of 2018 top trades
Global Macro Strategy 19 November 2018 |
93 |
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Figure 189: EM trade monitor
EM Trade Monitor
|
|
|
|
Status/ Close |
|
P&L |
|
|
P&L Units |
Entry Date |
Entry Level |
Date |
Current/ Exit level |
(incl. carry) |
Link to Publication |
Short SGDINR |
|
|
|
Open |
|
0.5% |
https://neo.ubs.com/shared/d257gRRzpb |
Short SGDINR |
% |
14-Nov-18 |
52.5 |
|
52.2 |
0.5% |
|
Long CLPCOP 3m NDF |
|
|
|
Open |
|
3.3% |
https://neo.ubs.com/shared/d2wNi1jWTzKLCtn |
|
% |
1-Oct-18 |
5 |
|
5 |
3.3% |
|
Long MSCI Indonesia against MSCI India |
|
|
|
Closed |
|
12.7% |
|
Long MSCI Indonesia USD |
% |
29-Jun-18 |
1,687 |
16-Nov-18 |
1,835 |
8.8% |
https://neo.ubs.com/shared/d2QbGQxuy3ZcvBs |
Short MSCI India USD |
% |
29-Jun-18 |
832 |
16-Nov-18 |
800 |
3.9% |
|
Overweight EM Banks vs. EM Metals & Mining |
|
|
|
Closed |
|
-0.4% |
|
Long MSCI EM Banks USD |
% |
14-Nov-17 |
368 |
16-Nov-18 |
360 |
1.8% |
https://neo.ubs.com/shared/d2owq1yr4Rg9B |
Short MSCI EM Metals & Mining USD |
% |
14-Nov-17 |
438 |
16-Nov-18 |
427 |
-2.2% |
|
Underweight Turkey vs. MSCI EM, Long USDTRY |
|
|
|
Closed |
|
26.7% |
|
Short MSCI Turkey USD |
% |
14-Nov-17 |
398 |
16-Nov-18 |
244 |
36.0% |
https://neo.ubs.com/shared/d2owq1yr4Rg9B |
Long MSCI EM USD |
% |
14-Nov-17 |
1118 |
16-Nov-18 |
986 |
-9.3% |
|
Long 10y Russia OFZs, long RUB vs. CAD |
|
|
|
Closed |
|
-5.4% |
|
Long Russia 2027 OFZ |
% |
14-Nov-17 |
7.71 |
16-Nov-18 |
8.64 |
0.1% |
https://neo.ubs.com/shared/d2owq1yr4Rg9B |
Short CADRUB (adjusted for funding cost) |
% |
14-Nov-17 |
47.48 |
16-Nov-18 |
50.11 |
-5.6% |
|
Long Brazil 2023 NTNF, Long BRL vs. COP |
|
|
|
Closed |
|
3.1% |
|
Long Brazil 2023 NTNF |
% |
14-Nov-17 |
10.01 |
16-Nov-18 |
9.12 |
10.4% |
https://neo.ubs.com/shared/d2owq1yr4Rg9B |
Long BRLCOP (adjusted for funding cost) |
% |
14-Nov-17 |
914 |
16-Nov-18 |
847 |
-7.3% |
|
Receive 5Y Mexico TIIE, pay 5Y US Swap |
|
|
|
Closed |
|
-36.0 bps |
|
Receive 5Y TIIE |
bps |
14-Nov-17 |
7.32 |
16-Nov-18 |
8.77 |
-143.0 |
https://neo.ubs.com/shared/d2owq1yr4Rg9B |
Pay 5Y US Swap |
bps |
14-Nov-17 |
2.12 |
16-Nov-18 |
3.04 |
107.1 |
|
Long CZK and PLN vs. EUR |
|
|
|
Closed |
|
-0.5% |
|
Short EURCZK (12m fwd) |
% |
14-Nov-17 |
25.70 |
16-Nov-18 |
25.99 |
-1.1% |
https://neo.ubs.com/shared/d2owq1yr4Rg9B |
Short EURPLN (12m fwd) |
% |
14-Nov-17 |
4.34 |
16-Nov-18 |
4.31 |
0.6% |
|
Overweight EM Sovereign credit vs. US HY** |
|
|
|
Closed |
|
-6.1% |
|
Long EM EMBI Global |
% |
14-Nov-17 |
114.49 |
16-Nov-18 |
108.81 |
-5.0% |
https://neo.ubs.com/shared/d2owq1yr4Rg9B |
Short USHY |
% |
14-Nov-17 |
86.68 |
16-Nov-18 |
87.71 |
-1.2% |
|
Short SGDPHP |
|
|
|
Stopped |
|
-1.7% |
https://neo.ubs.com/shared/d2gTeqoQo4Bni |
Short SGDPHP |
% |
3-Aug-18 |
38.83 |
20-Sep-18 |
39.50 |
-1.7% |
|
Long DM tech against EM tech |
|
|
|
Closed |
|
24.4% |
|
Long DM Tech USD |
% |
28-Mar-18 |
0 |
6-Sep-18 |
253 |
13.4% |
https://neo.ubs.com/shared/d2RqMMJHIxnM3Cz |
Short EM Tech USD |
% |
28-Mar-18 |
0 |
6-Sep-18 |
494 |
10.9% |
https://neo.ubs.com/shared/d2sQILKofT |
Buy 1M USDMXN OTM put option with strike at 20; Sell 2X the notional at 19.5 |
|
Closed |
|
0.3% |
|
||
Buy 1M USDMXN put with strike 20.0 (1M notional) & |
% |
19-Jun-18 |
0.1% |
19-Jul-18 |
0.4% |
0.3% |
https://neo.ubs.com/shared/d2zlePUyQLpDRH |
Sell 1M USDMXN put with strike 19.5 (2M notional) |
|
|
|
|
|
|
|
Pay 6m2y SGD vs. USD |
|
|
|
Closed |
|
-12 bps |
https://neo.ubs.com/shared/d2AB13tCVVWJw5V |
Pay 6m2y SGD vs. USD |
bps |
6-Mar-18 |
-68 |
9-Jul-18 |
-80 |
-12 |
https://neo.ubs.com/shared/d2KZgyBHFflvwr1 |
3m forward HKD 1s5s steepener |
|
|
|
Closed |
|
-3 bps |
https://neo.ubs.com/shared/d24TYqQQINT |
3m forward HKD 1s5s steepener |
bps |
23-Apr-18 |
56 |
3-Aug-18 |
53 |
-3 |
https://neo.ubs.com/shared/d2gTeqoQo4Bni |
Long USDPHP |
|
|
|
Closed |
|
2.5% |
https://neo.ubs.com/shared/d2yHuF4gyPl |
Long USDPHP |
% |
28-Mar-18 |
52.17 |
23-Jul-18 |
53.49 |
2.5% |
https://neo.ubs.com/shared/d2RqMMJHIxnM3Cz |
Long SGD against USD and JPY (75:25 weighted) |
|
|
|
Closed |
|
-0.9% |
|
Short USDSGD (12m fwd) |
% |
14-Nov-17 |
1.35 |
3-Aug-18 |
1.36 |
-0.8% |
https://neo.ubs.com/shared/d2owq1yr4Rg9B |
Short JPYSGD (12m fwd) |
% |
14-Nov-17 |
1.22 |
3-Aug-18 |
1.23 |
-1.2% |
https://neo.ubs.com/shared/d2gTeqoQo4Bni |
Pay 3m 2y NDOIS |
|
|
|
Closed |
|
51.8 bps |
|
Pay 3m 2y NDOIS |
bps |
23-Jan-18 |
6.35 |
6-Jun-18 |
6.87 |
51.8 |
https://neo.ubs.com/shared/d2WpFy9Ef2b5ke |
|
|
|
|
|
|
|
https://neo.ubs.com/shared/d2Jv92WGPT |
Overweight Brazil vs. Mexico Equities, FX hedged |
|
|
|
Closed |
|
23.9% |
|
Long MSCI Brazil LC |
% |
14-Nov-17 |
240,688m |
9-May-18 |
282,127m |
19.9% |
https://neo.ubs.com/shared/d2owq1yr4Rg9B |
Short MSCI Mexico LC |
% |
14-Nov-17 |
45,180 |
9-May-18 |
43,870 |
2.1% |
https://neo.ubs.com/shared/d2HLdrWdezgo6 |
Long ARS vs USD |
|
|
|
Closed |
|
-17.5% |
https://neo.ubs.com/shared/d2owq1yr4Rg9B |
Long ARS vs USD (12m fwd) |
% |
14-Nov-17 |
21.58 |
7-May-18 |
25.36 |
-17.5% |
https://neo.ubs.com/shared/d2Xg4TNJTy5m |
Long 5.3% 2023 IndoGB, FX Unhedged |
|
|
|
Closed |
|
2.3% |
|
Long 5.3% 2023 IndoGB |
% |
19-Jan-18 |
5.52 |
23-Feb-18 |
5.84 |
-1.0% |
https://neo.ubs.com/shared/d2boaphOIYE0c |
Long 7.5% 2038 IndoGB |
% |
8-Nov-17 |
7.22 |
19-Jan-18 |
6.88 |
4.5% |
https://neo.ubs.com/shared/d2x3NphqIu |
Short USDIDR |
% |
8-Nov-17 |
13517 |
23-Feb-18 |
13678 |
-1.2% |
https://neo.ubs.com/shared/d2n0HDqYZvH5k |
Short Yen, Long Won |
|
|
|
Closed |
|
-1.9% |
https://neo.ubs.com/shared/d235N3fV5VYX |
Short Yen/Won |
% |
7-Feb-18 |
9.92 |
23-Feb-18 |
10.11 |
-1.9% |
https://neo.ubs.com/shared/d2boaphOIYE0c |
** For EMBI global 'EMB US Equity' has been used and For USHY 'HYG US Equity' has been used Market pricing as of 07:00 GMT on 18 November 2018
This spreadsheet is a record of current and historical trade recommendations from published research as of 18 November 2018
Past performance is not an indication of future results
Source: UBS, Bloomberg, Datastream, MSCI
Global Macro Strategy 19 November 2018 |
94 |