EFTA01388529.pdf

From: Nadean Novogratz Sent: 11/15/2018 10:59:29 AM To: Paul Barrett CC: Martin Zeman I ; Stewart Oldfield I; Alan Brody Subject: FW: I/I Equity Derivs: FXI can outperform SPX coming out of the G20 Hi Paul, Interesting FXI upside trade out to February below. Is international underlyings interesting to you? Kind regards, Nadean From: Karthik Nagalingam [mailto Sent: Thursday, November 15, 2018 10:33 AM To: Karthik Nagalingam Subject: [/] Equity Derivs: FXI can outperform SPX coming out of the G20 Classification: Public Deutsche Equity Derivatives Can China Rip after 620? Even with Brexit negotiations going back and forth, oil trading like it is 2016, and the SPX continuing to trade lower. The questions I have fielded the most this week are about Chinese upside ahead of G20 in 2 weeks. This is a trade that people have been looking to put on a while, and while conviction may not be sky high, there is clearly a feeling of not being able to miss it — that points to low premium option ideas. Our House view remains constructive on a deal getting done and China's economy turning around. • The prospects of a trade deal have improved and our strategists are now up to a 50% likelihood of a deal being reached on Nov 29 • President Trump has asked his cabinet to draw up a potential deal. The president sees the market turmoil, and while he likes to blame the Fed and the incoming Dem House, he would likely rather the market go back to rising. • Slowdown can turnaround quickly in controlled economy. While we and most banks are downgrading China's GOP forecast given the trade war, a resolution along with continued accommodative fiscal policy in China can see that forecast reverse quickly. • Recently announced personal income tax cuts in China, estimated to be —0.5% of GDP, should boost retail sales and help offset downside risks to growth from the trade war • Like FXI over EEM. Given the construction of the two indices, I like FXI better for a purer play on Chinese economic conditions improving. EEM has larger tech exposure (along with obviously other countries), while FXI has higher weights to consumer products and industrial cyclicals that can outperform if higher global rates re-rate growth. 2 Trades for a real Chinese recovery: Vanilla — FXI Feb 42.5/48 Call Spreads for 96c (ref. 40.72, 28d) max payout 4.7x CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0092127 CONFIDENTIAL SDNY_GM_00238311 EFTA01388529