EFTA01459708.pdf

12 January 2016 FX Blueprint: Forever Young Theme #12: Burrito barato, pisco not sour - buy MXN/COP, PEN/CLP a Go long MXN/COP on fundamental divergence, Intra and inter-reg€onal valuation on out fundamental greater Banxico management of currency volatility !BEER metric and the pair's undervaluation vs. oil. % misalignment Go long PEN/CLP - the pair has reduced exposure s1 to copper and BCRP's substantial FX reserves should ensure continued management of PEN and 10 relative outperformance versus other commodity $ exporters in Let Am. 0 Focus on heterogeneity As mentioned in our year-end outlook, we envision another difficult year for Lat Am FX in 2016. Besides the adjustment to a new external backdrop (with higher rates in the US and lower commodity prices), 40 45 -20 I undervalued idiosyncratic problems including political uncertainty, igaitur-wranwmg high foreign ownership of domestic assets, fiscal woes, tan Dean* eat 61coflorg brora LP and inflation pressures should continue to weigh on the much battered asset class. IvIX621COP is undervalued vs. o€l That said, there are heterogeneities within the region as countries sit in different stages of the adjustment i I f t32 process. This provides in a good environment for relative value. We present two opportunities in the Let iso1 • g. Am space that take advantage of the differences in policy making within the region while reducing outright exposure to further declines in commodities prices. it0 Mispricing in the oil block: Long MXNFCOP (target: 205, stop:170 ref: 182 ) Traditionally not an oil exporter, MXN has still suffered 31 XX s1 42 4 4 4 x 52 84 %Ste 82 8.4 M 88 from the fall in oil prices and the China-related increase Taisra•I6Josal II sissZtt•teDiat. IACcti Al.Ie7e 'Nam in risk aversion. Adjustments in expectations on energy sector reforms and therefore prospective oil related FDI SAM kithell00/204alatill14/ 0410202*1.1"40 inflows, and the peso's use as a proxy hedge for other San* Doural# 544 5144555.#15now• :P Let Am FX exposures are the two obvious culprits behind the recent move lower, which in our view has been exaggerated. Lower exposure to China and US COP has greater exposure than MXN to further crude related externalities should translate into lower weakness volatility for the MXN. We also believe that a weaker Bebe ORI. t changes). FX vs Bost crude (1.40 crosses) peso could be harmful to the economy through the 0.05 - "financial stability" channel, justifying the rather "currency oriented" communiques adopted by Banxico. 0.00 Going forward we envision two possible scenarios: 405 - further currency volatility management by Banxico in case "risk-off" continues, or a retracement to 41.10 fundamentals if global volatility subs€des (MXN is -0.15 undervalued on our fundamental metrics). In either case we see MXN trading at stronger levels versus -0.20 other LatAm FX in the near future. -025 - -0.30 436 - Nito.b.40,,A0.44.4,Avo.c.twetAel.t..eq. 5.strof Datisla•Sint Elacentn Anne lP Deutsche Bank AG/London Page 25 CONFIDENTIAL — PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0120345 CONFIDENTIAL SDNY_GM_00266529 EFTA01459708