EFTA01379443.pdf

Deutsche Bank Markets Research Global Economics Special Report Date Rates 11 December 2017 Credit Strategist EMFX Outlook 2018: Growth-led 1+11212 2507355 [email protected] Revaluation nu..?; (,er. The EM FX rally versus the dollar in 2017 has been largely driven by Macro Strategist weakening of the broad USD itself rather than "intrinsic" EM revaluation. 1+65) 6023 6973 Also, it overshadows a rather lacklustre performance of the 'carry trade' sameer.goeledb.corn per se. ()auto n't koEtiol. PhD We believe EM FX can perform well for the remainder of 2017 and in 2018 Strategist on the following factors: :: EM FX valuations are still attractive; ; There is 1+44) 20 754.57066 room for further EM inflows (particularly into equities); ": Higher, more [email protected] synchronized growth and narrowing gaps are supportive for EM currencies; •il EM's external vulnerabilities have reduced, and are far lower Sebastian than in 2013. Strategist • Which specific EM currencies stand out as attractive? We divide our (+11212 250.8191 prospective longs into three categories: 13 'Defenni:.4,' - currencies sebastian.brownCadb.som that have stronger buffers/fundamentals and hence should be able to perform in a broad range of external environments (even more difficult Jae Cvar,; ones); these include RUB, BRL, THB and KRW. Strategist 2, I :< -,..t • . ti '. it - currencies which may not have as (+11212 250-8605 strong buffers but are cheap and have significant scope for appreciation in [email protected] positive external environments; these include MYR, PLN, HUF, CLP, and PEN. .31 dr' - currencies dependent on specific sources of risk. In this camp we have long ZAR (and - initially - short MXN). • Which specific EM rti tt" '; Zi . ._. :r We are bearish on COP. INR and ILS due to either domestic concerns, valuations or external vulnerabilities. • V•,,i-titt Ltviiii::• .‘ We like the 'good vs. bad EM' commodity RV trade of long RUB and BRL vs. short COP. a While we are broadly constructive on EM FX for 2018. there are primarily stemming from an acceleration in US inflation (and hence a more hawkish Fed), global QE reduction and a slowdown in Chinese growth. a However, a number of these external risks could manifest around O2 (e.g. US inflation rising and Chinese growth slowing), thus marking Q2 as an important checkpoint for re-evaluating our constructive view on EM FX. But for this reason we also expect O1 to be particularly constructive for EM FX (a window of opportunity), as the supportive factors remain in place while the potential risks are skewed towards the following quarter. Deutsche Bank Securities Inc. Distributed on: 11/12/2017 07:45:42 GMT DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0076920 CONFIDENTIAL SDNY_GM_00223104 EFTA01379443