EFTA02489139.pdf

From: Daniel Sabba To: leevacationQgmail.com [email protected]> Subject: Fw: Gautam:EMEA FX Chartpack: high yielders vs. low yielders divergence (II Sent: Thursday, September 10, 2015 2:48:19 AM ATT00001.onq ATT00002.pnq ATT00003.0nq ATT00004.onq ATT00005.pnq ATT00006.onq ATT00007.pnq ATT00008.pnq ATT00009.pnq ATT00010.0nq Classification: For Internal Use Only Thought provoking charts. From: Isin Sumengen-Ziel (DEUTSCHE BANK AG, LO) Sent: Wednesday, September 09, 2015 10:09 AM Subject: Gautam:EMEA FX Chartpack: high yielders vs. low yielders divergence Given the volatile price action in the EMEA high betas (TRY, RUB, ZAR), the below charts may be informative: 1) Stretchometer: Price action is certainty stretched (on the weaker side) across the board, but especially in MYR and BRL. TRY ZAR RUB price action is also stretched, but not as much as before the rally over the past two days. EFTA_R1_01609450 EFTA02489139 Looking specifically at USDTRY, price action is now stretched to the extent we saw earlier this year and more importantly at the start of 2014 (when the CBT undertook an emergency rate hike). The stretchometer for USDZAR is at 5-yr highs, but has retraced somewhat in the last 2 days (in line with the risk-on appreciation move observed across the EMEA high-yielders). EFTA_R1_01609451 EFTA02489140 USDRUB price action is also stretched, but we are still far below the 'stretch' levels we have seen in the recent past. N EFTA_R1_01609452 EFTA02489141 2) Financial fair value (based on a regression of spot on S&P, VIX, Crude, CRB, US 10y, DXY, carry): According to our short term 'financial fair value' metric, EM FX is cheap almost across the board, with ZAR being the the most undervalued currency. TRY is also cheap, while RUB less so. However, these results should be taken with a pinch of salt, as the short-term valuation metric provides a better picture when currencies are trading within relatively tight ranges, rather than trending strongly and breaking new ground (as is the case currently for many EM currencies) due to domestic factors/factors not captured by the model. Financial fair value (USD crosses): As the charts below show, the extent of undervaluation (i.e. the magnitude of the model residual) is at 1y extremes for TRY and ZAR, but not for RUB. USDTRY: EFTA_R1_01609453 EFTA02489142 USOZAR: EFTA_R1_01609454 EFTA02489143  z USDRUB: EFTA_R1_01609455 EFTA02489144 Mother point to highlight from the financial fair value metric, other than the cheapness of TRY and ZAR in particular, is the resilience of Central Europe (HUF. CZK, PLN, RON). We have been highlighting our bullish bias on the region (HUF and PLN in particular), and the financial fair value metric corroborates the fact that these currencies have been mostly immune to the recent sell-off in EM FX. They have the best performing EM currencies (vs USD) since the yuan deval. Over this period, there has certainly been differentiation within EMEA — weakening bias in the high yielders TRY RUB ZAR and resilience in Central Europe fx. This differentiation is also evident in the chart below, which indicates that the average correlation between the EMEA fx currencies (USD crosses) has come down sharply in the past few months. EFTA_R1_01609456 EFTA02489145  N Best, Gautam Gautam Kalani, Ph.D Economist/Strategist Deutsche Bank AG, Filiale London Emerging Markets Research Winchester House. 1 Great Winchester Street. EC2N 2DB London. United Kingdom Tel..44(20)754-57066 Email [email protected] This e-mail may contain confidential and/or privileged information. 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