EFTA01379446.pdf

11 December 2017 Special Report: EMFX Outlook 2018: Growth-led Revaluation IEM currencies ranked on 'defensive' metrics: THB. likely (chart). We assume no meaningful escalation of sanctions - the main risk we foresee. RUB and BRL have the best defenses best EM FX: real rates and basic balances dolenese ► 1163 SRL 6 • IIUO IWO IHR • Strong 4 defenses BBL 3 NY. rnn • • • PEN ts TRy • COP• IOR I •ISOIN •TIS PEN CLP • 0 PM We 'NR • irat - webst 'X Awry, adswir6 CD( • —News • .0444411 -3 muF 4 0 5 10 IS Wow Oflateseal NMIOW tow baits V. GOP NO ramp turn) Sate* NOMAf Bent We also highlight that all tout of our preferred 'defensive' longs - RUB, BRL. THE, KRW - have relati:.My lx:t ?IS to the broad dollar and also US real Like RUB, BRL scores well on 'defensive' metrics. rates (chart below). These betas are lower when Both current and I-year ahead real rates are among the estimated over the past couple of months on reduced highest in EM (chart below). Expected FDI inflows are 4 positioning in the period. The estimates for the past times as large as the current account deficit and only a month for BRL and RUB are closer to the ones obtained very strong investment cycle (that we do not foresee) for low yielders, suggesting that positioning is also could dent this ratio. Moreover, we expect an increase relatively light. in equity portfolio inflows as economic activity continues to recover during 2018. Elections remain the wild card, but we expect voters to reject the populist Defensive longs RUB, THB, BRL and KRW have left and for candidates to try to capture the center. relatively low exposure to broad dollar and UST Bela to TIPS BRL (and RUB). extended real rates support 0.1 age 4 i roate le ased *TRY • BRL OA • . Fer, ten. 4041ell 4hAt, • AUll • Its • S 2 . INA RAW • IOR .2.4A • CIF t .0.1 • WM FHP.•‘:CIR top4PEN SGD • MI cop • • Gel • RUB. .II 0 .4". CLP •xnw • TRY • Ca PUS••4 ,Ls *sap hew corn teal rate B CZAR COW 1 6 SB • HIS OA 02 Oct. to OXY -3 -2 0 i 2 3 4 5 Comm met new Imes, We -headire CPI) San boar* &'k Strap Ananco tOn5.-rcrow Sant LWOW* Owe RUB. In addition to scoring well on 'defensive' metrics, RUB has significantly lagged the recent rally in crude rI L The current account remains large; domestic and is cheap on our PCA-based short-term 'financial outflows are not recycling the surplus (in spite of policy fair value' metric. Further, crude in RUB terms near two effort to that effect); foreigners are underweight Thai year highs boosts fiscal accounts. Also, the macro assets; THB does not look stretched on valuations; and backdrop is supportive, with accelerating growth (as politics appears on track for elections. BoT has not per high-frequency gauges) and record-low inflation. budged on policy despite government pressure to cut CBR is in cautious easing mode which is positive for FX, rates. THB gains have occurred alongside an export as real rates remain high while bond outflows are less recovery, making the currency's strength less problematic. Deutsche Bank Securities Inc. Page 5 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0076924 CONFIDENTIAL SDNY_GM_00223108 EFTA01379446