• GDP growth will likely accelerate on a more favourable external environment
• Conservative fiscal policy remains the strongest credit support
• Conflict in Syria could jeopardise the peace process with the Kurds
Direction signal now neutral from negative as foreign flows to EM debt, especially oil importers, improve
• Spread signal turns positive on flows to high-yielding oil importers (INR, ZAR, TRY, IDR) plus Brazil
• October fund allocations reflect ...
Direction signal stays negative on weak demand for EM debt; EM FX weakness puts pressure on EM bonds
• Structural investors continue to favour Asia bonds; hard data supports Korea and Indonesia
• Flow rotation continues from Russia, Turkey and So...
Direction signal stays negative on weak demand for EM debt
• Allocations moved towards Brazil in August on Marina Silva, a catalyst for change; now Dilma fights back
• Brazil’s subsequent underperformance makes it cheap and positioning is not skew...
Top 3 data/events
• China – Inflation pressure remains muted
• Japan – Current account surplus likely shrank in May
• United Kingdom – Industrial production likely to have improved further in May
• Positioning for uneven and slug...
Recent TRY weakness on geopolitical concerns creates a selling opportunity in USD-TRY
• The foundations of TRY’s medium-term outperformance relative to other high-beta EM FX remain in place
• Sell USD-TRY 6M forward, entry 2.1960 (spot 2.1180), ta...
• In an emergency meeting, the Central Bank of the Republic of Turkey (CBRT) made a very strong move, raising all of the interest rates in its complicated monetary policy framework. The upper band of the corridor (O/N lending rate) was raise...
After August’s MPC meeting the CBRT made a policy U-turn; this was confirmed at the September meeting
• The central bank will focus on ‘interest rate stability’ and let the TRY fluctuate
• Investors continue to worry about widening deficits, CPI a...
• Recent events have exposed Turkey’s vulnerabilities, while diminishing its policy options
• We lower our 2013 GDP growth forecast, raise the interest rate forecasts and reassess the FX trajectory
• We do not envisage a ‘sudden halt’, but risks o...
Our sensitivity indicator of yield vs. positioning is falling; EM/DM yield spreads to widen near-term
• Within EM, low-yielding bonds to outperform high-yielding as the sensitivity of positioning to yields falls
• Investors should keep exposure to...
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