EMERGING MARKETS OUTLOOK Q4 2021 FLIPPERS AND FLOPPERS LOCAL EYES FOR A GLOBAL VIEW Please refer to important information at the end of the report and MAR disclosures
EMERGING MARKETS
OUTLOOK Q4 2021FLIPPERS AND FLOPPERS
LOCAL EYES FOR A GLOBAL VIEW
Please refer to important information at the end of the report and MAR disclosures
07/09/2021
EMERGING MARKETS RESEARCH | COMMODITIES | G10FX | CROSS-ASSET | EQUITY DERIVATIVES | G10 INTEREST RATES | EMERGING MARKETS | MACRO QUANT & DERIVATIVES |
CREDIT
1E M – LOCA L E YE S FOR A GLOB A L V IE W
| DEEP DIVE
KEY MESSAGES• In emerging markets, we see policy ‘flippers’ and ‘floppers’.
• In most of the West (Latam and CEEMEA), robust recovery has come with higher inflation,
forcing central banks to flip to rate hikes. In turn, growth in these regions is set to moderate
next year.
• In emerging Asia, by contrast, sluggish growth and low inflation allow central banks to keep
interest rates floppy, at low levels. Along with loose fiscal policy, low rates should support a
bounce back.
• We expect EM fiscal consolidation will be gradual, due to little appetite for austerity. Politics
bears watching, especially in countries with elections.
• We believe comfortable current account positions will be sustained across most EM,
especially where commodity prices help.
• We think the outlook for EM asset prices remains broadly benign, especially if EM
decouples from concerns on China.
• Still, differentiation favours relative value trades and being more selective.
Emerging Market outlook: Flippers and floppers
EMERGING MARKETS RESEARCH
Emerging Markets 360 team
EM ECONOMICS | EM STRATEGY
TABLE OF CONTENTS
Macro overview ….. 2
EM strategy ….. 3
GDP growth outlook …. 4
Inflation and policy rates.… 5
External accounts ….. 6
Fiscal policy ….. 7
Key dates ….. 8
Overviews: EM Asia/Latam... 9
Overviews: CEEMEA... 10
Central bank cheatsheet..... 11
BNPP forecasts table..... 12
Our team ..... 13
BNP Paribas forecasts Q4 2021
(1.5)
0.5
2.5
4.5
6.5
8.5
Q4
fo
recast
Q3
GO
Ch
an
ge
Q4
fo
recast
Q3
GO
Ch
an
ge
Q4
fo
recast
Q3
GO
Ch
an
ge
Q4
fo
recast
Q3
GO
Ch
an
ge
Q4
fo
recast
Q3
GO
Ch
an
ge
Q4
fo
recast
Q3
GO
Ch
an
ge
EM aggregate Latam CEEMEA EM Asia
2021 GDP
(%y/y)
2022 GDP
(%y/y)
2021 CPI
(avg %y/y)
2022 CPI
(avg %y/y)
2021 Policy Rate
(% year-end)
2022 Policy Rate
(% year-end)
07/09/2021
EMERGING MARKETS RESEARCH | COMMODITIES | G10FX | CROSS-ASSET | EQUITY DERIVATIVES | G10 INTEREST RATES | EMERGING MARKETS | MACRO QUANT & DERIVATIVES |
CREDIT
2E M – LOCA L E YE S FOR A GLOB A L V IE W
| DEEP DIVE
Market concerns on growth downturn look overdone
We have seen two significant developments in recent months: the spread of the
Covid-19 Delta variant (and associated supply constraints), and a slowdown in
China on the back of new restrictions and a regulatory shift. However, we think
market concerns about the growth impact of these developments have been
exaggerated (see Global Outlook Q4 2021, dated 7 September).
In our opinion, progress in vaccinations will continue to weaken the link between
the pandemic and its economic impact, while upcoming Chinese stimulus is likely
to support China’s growth. In addition, commodity prices, a key driver for many
emerging markets, are increasingly supported by global growth trends rather than
Chinese growth alone.
That said, we worry that lingering supply-chain disruptions, along with continued
de-globalisation and nearshoring trends, could work as a negative supply-side
shock putting upward pressure on inflation. In fact, we are concerned that EM
inflation could peak higher and persist for longer than many assume.
Global outlook supportive for EM, if less than before
Despite a near-term speed bump, our view on underlying global growth remains
positive: global liquidity conditions remain abundant, prospects for commodity
prices still look encouraging (supporting EM current account balances) and we
continue to expect a fairly tantrum-less taper by the US Fed. That said, the
prospective rise in real yields in advanced economies suggests less support than
before for EM asset prices. We therefore prefer relative value trades in EM, rather
than outright bullish positions.
Local conditions indicate different paths among EM regions
Beyond global factors, local conditions suggest differing paths ahead for EM
regions. In Latam and most of CEEMEA, growth remains fairly robust, although
inflation concerns are forcing more central banks to hike interest rates, from Brazil
and Chile to Russia and Central Europe. In turn, with a lag, we expect cumulative
monetary tightening to cool growth in these regions next year.
In contrast, especially in countries where Covid-19 has continued to be a
concern, growth in emerging Asia remains sluggish compared to its otherwise
speedy long-term trend, entailing a more protracted recovery path. Facing smaller
macroeconomic imbalances and less inflation pressure than other regions, most
central banks in Southeast Asia seem in no rush to hike. As a result, we see room
for growth to gain traction in emerging Asia into next year.
Policy flippers and floppers
Virtually every country eased policy in the initial aftermath of the pandemic shock.
However, we now see increasing policy differentiation across the globe, including
within EM. Fiscal balances in EM are likely to take time to recover their pre-
pandemic levels, as fiscal consolidation will probably prove to be gradual. While
such a broad description remains true for EM overall, the specifics vary from
country to country.
We think the monetary policy response so far falls roughly into two main
categories: flippers and floppers. Flippers are the policymakers who are facing
increasing inflation pressure and cannot afford to stay in denial for too long, so
are embarking on a tightening cycle. They have either been hiking rates already
or we think they will start soon. That includes almost every central bank in Latam
(Brazil, Mexico, Chile, Colombia), and many in CEEMEA (Russia, Hungary,
Czech Republic, Poland, South Africa).
In contrast, floppers are the policymakers who are keen to keep policy in
accommodative territory for longer. In some cases, this is because they are not
yet facing any major inflationary pressure (most countries in EM Asia) or are even
considering some additional easing (Japan). Alternatively, they explicitly prefer to
stay behind the curve on purpose, under their recently altered monetary policy
regimes (the Fed and the ECB).
All things considered, while global factors remain broadly supportive (if less so
than before), varying local conditions look set to bring increased differentiation
within EM in the months ahead, in our view.
.
Macro overview: Flippers and floppers
EMERGING MARKETS RESEARCH
Marcelo Carvalho, Global Head of Emerging Markets Research | BNP Paribas London branch
EM ECONOMICS | EM STRATEGY
Sources: IMF, BNP Paribas forecasts
80
90
100
110
Q4 19 Q4 20 Q4 21 Q4 22
EM aggregate Latam
CEEMEA EM Asia
GDP back to pre-Covid levels in all regions by end-year
07/09/2021
EMERGING MARKETS RESEARCH | COMMODITIES | G10FX | CROSS-ASSET | EQUITY DERIVATIVES | G10 INTEREST RATES | EMERGING MARKETS | MACRO QUANT & DERIVATIVES |
CREDIT
3E M – LOCA L E YE S FOR A GLOB A L V IE W
| DEEP DIVE
A slowdown in China can be viewed as a fundamental risk for emerging market
economies, as economic activity has historically been strongly tied to China’s cycles.
Transmission channels from China to EM changing: Chinese economic activity
normally transfers into EM economies and asset prices through three main channels:
demand, commodity prices and currency correlation.
EM macroeconomic cycle now more secular than China’s: This time, however, the
EM economic cycle is more independent of China, in our view, as seen in the decoupling
of surprise indices between China and EM, particularly EM Asia (see top chart)
Demand in China: When Chinese growth accelerates, total export volumes for EM
gain pace. Historical data suggest that China’s exports and imports are firmly linked to
EM export performance. But more importantly a Granger causality test suggests
China’s imports lead EM exports. Therefore, stronger activity in China results in
stronger foreign demand for other EM (lower chart).
Currently, the slowdown in China is not having a major impact on its external
accounts. Global demand is still strong, keeping Chinese exports high, despite the
domestic slowdown and EM external accounts remain supported (see page 6).
Commodity prices: In previous pieces (see EM Strategy Views: Evaluating the risks,
dated 14 July) we outline that the Chinese credit impulse is strongly linked to
commodity prices globally, largely because for most commodities China constitutes
around 50% of total demand.
At the moment, however, the commodities channel seems to be less effective, in our
view. Despite a significant drop in the Chinese credit impulse, commodities are
holding on to their gains and regions are even showing significant price differences,
such as US steel prices double that of China’s. This points to other drivers of global
commodity demand besides China.
Conventional correlation of currencies: USDRMB is highly correlated with other
EM currencies, especially EM Asian currencies. So, a fundamental RMB weakness or
strength has an outright impact on EM currencies. We have a range-bound outlook for
USDCNH, at present, despite the economic slowdown. So, even if EM FX is still
highly correlated with the RMB, we do not expect any secular weakness in the RMB,
due to continued strength in China’s external accounts.
Against this backdrop, we still prefer to be long commodity-driven currencies in EM.
Strong terms of trade, improving current accounts and rate-hike cycles favour high-beta
currencies in the absence of a negative shock from China.
EM strategy: China cycle less integrated with EM
Sources: Bloomberg, BNP Paribas
EM ECONOMICS | EM STRATEGY | MARKET ECONOMICS
EM surprise indicator versus China surprise indicator
Burak Baskurt, CFA, Chief EM Strategist | BNP Paribas London Branch
Sources: Bloomberg, BNP Paribas, CPB Netherlands Bureau for Economic Policy Analysis
*monthly data starting from January 2010 to June 2021, equation is a linear regression between
Chinese import volumes and EM (ex China) export volumes)
China exports and imports leading EM exports
EM STRATEGY
07/09/2021
EMERGING MARKETS RESEARCH | COMMODITIES | G10FX | CROSS-ASSET | EQUITY DERIVATIVES | G10 INTEREST RATES | EMERGING MARKETS | MACRO QUANT & DERIVATIVES |
CREDIT
4E M – LOCA L E YE S FOR A GLOB A L V IE W
| DEEP DIVE
Jan-21 Apr-21 Jul-21 Oct-21 Feb-22 May-22 Aug-22 Dec-22
UAESpainQatarChile
SingaporeBelgium
ItalyFrance
BahrainHungary
GermanyMalaysia
Czech Rep.Sweden
ChinaUK
PolandIsrael
USArgentina
MexicoTurkeyBrazil
ThailandColombia
RussiaAustralia
IndiaSouth Africa
Sep'19
Aug'21
Sep'19
Aug'21
Sep'19
Aug'21
-20
-15
-10
-5
0
5
10
90 92 94 96 98 100 102
Fu
ture
ou
tpu
t in
de
x (
devia
tio
n f
rom
5yr
avg)
Composite leading indicator (100=trend)
CEEMEAEM AsiaLATAM
Above long-term
average, positive
GDP growth
Below long-term GDP
growth average, positive
expansion
Below long-term average,
GDP contraction
Above long-term
average, GDP
contraction
Different hills to climb (or slide down): Overall, emerging markets have recovered
faster than expected from the depths of the first wave of Covid-19 in H1 2020, but this
year marked a cleavage between east and west, with EM Asia experiencing a Covid-
driven speed bump, seeing its recovery going back a few squares, while Latam and
CEEMEA have mostly outperformed expectations (see page 9).
Next year, we think trends will invert: Latam economies are bound to slow down as
they face headwinds from necessary policy normalisation (both fiscal and monetary)
and political volatility; EM Asia will kick off and drift closer to the pre-pandemic
dynamics of mostly high GDP growth; in CEEMEA, stories vary (see page 10).
With Chinese external demand resilient, the impact from the slowdown in China to the
rest of EM may have been overstated, and potential fiscal and monetary support could
shore up markets later in the year, in our view - particularly if Covid restrictions ease.
More infection-tolerant policies as vaccination expands: We think the pandemic is
having a decreasing impact on economic activity. Even more virus-wary areas like EM
Asia are easing restrictions to the vaccinated, in the footsteps of the European
experience, with zero-Covid strategies proving unviable in most countries (see Covid-
19 Delta variant: Economic risks may be overdone, dated 19 August). We forecast a
fast bounce back following a big reopening in Q4 in India, Indonesia and Malaysia.
Stagflation tail risk confronting central banks: Higher input costs are having an
impact on output trends, our analysis finds (see EM: Latent stagflation risks, dated 10
August). Continued disruption caused by the pandemic should keep supply chains and
trade channels strained in the near term, providing the main near-term risk to GDP.
Covid-19 intersection leading to two-track recovery
Sources: OECD, BNP Paribas. Dotted lines stand for BNP Paribas forecasts
EM ECONOMICS | EM STRATEGY | MARKET ECONOMICS
EM Asia losing pace; Latam on upswing; CEEMEA indicators mixed
*if vaccination pace, as at 6 September 2021 or latest, is maintained. Colour codes: Navy = Latam, Green =
CEEMEA, Rose = EM Asia, Grey = Developed markets. Sources: OurWorldinData, estimates by BNP ParibasLuiz Eduardo Peixoto, Emerging Markets Economist | BNP Paribas London branch
EM ECONOMICS | EM STRATEGY
Most EMs seeing majority of people vaccinated by Q4 (70% threshold*);
scramble for booster jab to start
Economic mobility = average of flow of people to retail, services, workplaces and hospitality businesses.
Data up until 7 August 2021. Sources: Google Mobility Reports, BNP Paribas
<< current stage
Mobility levels
near pre-
Covid levels in
most areas;
new
lockdowns did
not cause the
same slump
as in 2020
Pandemic adaptation: Economic mobility more resilient to restrictions
EM ECONOMICS – GDP GROWTH OUTLOOK
07/09/2021
EMERGING MARKETS RESEARCH | COMMODITIES | G10FX | CROSS-ASSET | EQUITY DERIVATIVES | G10 INTEREST RATES | EMERGING MARKETS | MACRO QUANT & DERIVATIVES |
CREDIT
5E M – LOCA L E YE S FOR A GLOB A L V IE W
| DEEP DIVE
CBRT
CBE
BI
PBoCBNMBoT
BNR
RBI
NBPBoK
SARB
NBH
Banxico CNB
BCCh
BanRep
CBR
BCB
-1
-0.5
0
0.5
1
1.5
2
2.5
-3 -2 -1 0 1 2 3 4
Po
licy r
ate
ch
an
ge e
xp
ecte
d
(Sep to D
ec 2
021)
Dove–Hawk scale (3=more hawkish)
Gradual disinflation, but pressures could linger: Inflation pressures have proved
longer lasting and more intense than consensus and policymakers assumed. While
we see inflation easing, slackening price pressures will not be linear and could take
time: inflation expectations have risen, meaning stickier prices, and domestic CPI
rates have yet to fully reflect the surge in input costs. This suggests that the
disinflation will take longer and be less synchronised than the upswing (see below).
Time for action: We believe these global forces, alongside sizable fiscal stimulus
packages in some EM economies, suggest the balance of risk to economic activity
and inflation calls for some policy normalisation in EM, as we argued in EM: Three
stages of grief (7 July). Indeed, several central banks have already hiked rates – in
Brazil, Russia, Chile, Hungary and the Czech Republic – and will continue doing so
at coming meetings.
Reluctant acceptance: Even banks on the more dovish side of the fence are seeing
fading resistance to hikes: Colombia’s BanRep and the National Bank of Poland (see
lower right chart) will start normalisation cycles, in our opinion, when following their
peers in Latam and CE3. Mexico’s Banxico, reluctantly and not without board
disagreement, will continue to raise rates.
One big exception remains EM Asia: Again, Asia is an exception. We do not see
any rate changes until 2023 among ASEAN central banks, as inflation is low and
there is some ground to cover from narrowing output gaps – indeed, there is even a
risk of a rate cut in Thailand, though this is not our base case scenario. South Korea
and India will move, but very gradually, eyeing potential damage to economic activity.
EM central banks face uphill battle as inflation persists
EM ECONOMICS | EM STRATEGY | MARKET ECONOMICS
Sources: BNP Paribas
Even dovish central banks on the move; EM Asia to remain exception
EM ECONOMICS | EM STRATEGY
Colour codes: Navy = Latam, Green = CEEMEA, Rose = EM Asia.
Sources: BNP Paribas forecasts
More change coming, but some central banks yet to come to terms with
higher global rates (pp)
Sources: IMF, National statistics bureaus, BNP Paribas. Dotted lines = BNP Paribas forecasts
Higher core inflation means sticky prices and risks to disinflation
(EM ex-China inflation aggregate, GDP weighted)
Luiz Eduardo Peixoto, Emerging Markets Economist | BNP Paribas London branch
FlippersFloppersFloppersOthers
Inflation
risks still to
the upside
as price
pressures
seem more
enduring
EM ECONOMICS – INFLATION AND POLICY RATES
07/09/2021
EMERGING MARKETS RESEARCH | COMMODITIES | G10FX | CROSS-ASSET | EQUITY DERIVATIVES | G10 INTEREST RATES | EMERGING MARKETS | MACRO QUANT & DERIVATIVES |
CREDIT
6E M – LOCA L E YE S FOR A GLOB A L V IE W
| DEEP DIVE
Current account levels still well supported: We maintain an upbeat view on EM
external accounts, thanks to supported levels of global trade and possible growth
recoveries in Europe and the US. Healthy external accounts could prove a major
source of strength ahead of G10 monetary policy normalisation.
This year, exports have risen by more than imports, meaning stronger external
accounts in most countries by end-2021. This is particularly so (but not only) among
commodity exporters, as we analysed in Commodity boom: EM inflation fears offset
by trade boost, dated 30 June: We also forecast Turkey and Egypt to have seen
current account improvements.
Deterioration starts: In 2022, we think the story begins to change. Import growth will
mostly outpace export expansion across EM, with current accounts deteriorating in
most countries (chart below). We expect this in Asia in particular, with a jump in
domestic demand, while foreign tourism – a source of inflows for many in the region –
will remain depressed (see Global tourism: Ready for take-off, dated 13 July).
We will be particularly monitoring countries running twin deficits, some relying on
portfolio inflows to fund shortfalls, such as Colombia, Romania, Turkey and South
Africa. Commodity prices will remain an advantage to major exporters like Brazil,
Russia and Indonesia to avoid big shortfalls as imports rise, offsetting the
deterioration in external accounts. Despite the recent cooling of tradable prices, we
flag that all commodity subgroups remain above 2019 levels (top right chart).
EM better prepared for tapering as external accounts mostly healthy
Sources: S&P Global Platts, BNP Paribas
EM ECONOMICS | EM STRATEGY | MARKET ECONOMICS
Commodity prices remain above pre-pandemic levels – grains, materials
and metals outperform energy (traded prices, 2019=100, 3mma)
Sources: BNP Paribas (all forecasts)
Current account deficits widening, our forecasts suggest (pp of GDP)
EM ECONOMICS | EM STRATEGY
Colour codes: purple for major oil exporters, navy for other commodity exporters, rose for
manufacturing exports and green for mixed exports.
Sources: BNP Paribas forecasts for all
Commodity rally is double-edged sword
Luiz Eduardo Peixoto, Emerging Markets Economist | BNP Paribas London branch
-6-4-202468
Rom
an
ia
Colo
mbia
Ba
hra
in
Eg
yp
t
Om
an
Tu
rke
y
India
Bra
zil
Chile
Indo
nesia
So
uth
Afr
ica
Hun
ga
ry
Me
xic
o
Th
aila
nd
Arg
en
tina
Czech
Rep
.
Po
lan
d
Chin
a
Ma
laysia
Ru
ssia
Sa
ud
i A
rab
ia
So
uth
Ko
rea
Qa
tar
UA
E
EM
ag
gre
ga
te
2021 2022 2023 chg (2021-20) chg (2022-21)
Persistent external
shortfalls
Argentina
Brazil
Chile
Colombia
Mexico
Czech Rep.
Hungary
Poland
Romania
Russia
South Africa
Turkey
Saudi ArabiaEgypt
UAE
China
India
Indonesia
MalaysiaSouth Korea
Thailand
1.0%
1.2%
1.4%
1.6%
1.8%
2.0%
2.2%
2.4%
2.6%
-1% 0% 1% 2% 3%
Impact of each 1
0%
ris
e in
fuel and f
ood
com
mo
ditie
s to C
PI in
fla
tio
n (
in p
p)
Impact of each 10% rise in commodity prices (pp GDP contribution to current account balances)
EM ECONOMICS – EXTERNAL ACCOUNTS
07/09/2021
EMERGING MARKETS RESEARCH | COMMODITIES | G10FX | CROSS-ASSET | EQUITY DERIVATIVES | G10 INTEREST RATES | EMERGING MARKETS | MACRO QUANT & DERIVATIVES |
CREDIT
7E M – LOCA L E YE S FOR A GLOB A L V IE W
| DEEP DIVE
-12
-10
-8
-6
-4
-2
0
2019 2020 2021 2022
EM aggregate LATAM CEEMEA EM Asia
We do not anticipate fiscal austerity to return to favour in EM countries. Yet we also
believe that a moment of reckoning, considering spiralling debt levels, may eventually
arrive in some EMs dealing with debt sustainability concerns.
The nature of last year’s fiscal packages – mostly financial aid to households and
corporates – suggests that any less fiscal support could directly hit economic
performance. Nevertheless, with Covid-19 restrictions turning less stringent as
vaccination expands and society adapts, we expect governments to have an excuse to
lift support schemes.
Winding road to fiscal adjustment: On average, EM countries need a surplus of
0.7% of GDP in order to stabilise debt ratios, we estimate, based on our team’s
projections for GDP growth over 2021-22 (see Debt sustainability – Quantitative;
Beyond the ratios, dated 28 July). This compares with our average deficit forecasts of
5.2% for 2021 and 3.9% for 2022 and illustrates not only the large fiscal adjustment
needed but also the longer, slower route chosen.
Latam an unsurprising laggard: On our fiscal metrics scorecard, Latin American
countries score worse than emerging Asia. This is explained not simply by debt
concerns, but also by weaker governance and larger funding requirements, although
fiscal rules have improved the situation in recent years. However, we note that the
commodity boom has provided some cushion in the area (see Commodity boom: EM
inflation fears offset by trade boost, 30 June).
EM Asia a predictable highlight: In general, countries in Asia have more leeway to
boost fiscal support, but have used it in varying degrees: In India concerns over a
jump in spending are assuaged by a ‘high growth, high conviction’ backdrop, although
there – as in Malaysia – higher debt levels and fiscal constraints are keeping a
contractionary bias. In Thailand, we see policy moving in favour of further fiscal
stimulus, entirely bucking the consolidation trend. Indonesia looks more inclined to
reduce its fiscal deficits.
CEEMEA frameworks matter: In CEEMEA, we see some cleavage between
commodity exporters and importers. Oil-heavy Russia and the GCC have strong fiscal
metrics and are experiencing a windfall, but they will go in different directions: the Gulf is
cutting spending, while we expect Russia to keep spending levels higher than pre-Covid.
South Africa has perhaps the worst debt dynamics in the region, and is likely to
consolidate. Poland, Hungary and the Czech Republic benefit from robust EU fiscal
frameworks and firm GDP growth rates, but for Romania it may be trickier to balance
its books given the extra spending and political volatility. In Turkey, fiscal concerns are
relatively contained and government revenue has held up well in the pandemic.
Fiscal tweaks not enough to fix debt, but enough to limit growth
EM ECONOMICS | EM STRATEGY | MARKET ECONOMICS
Green = better fiscal score; Red = worse fiscal score. For methodology, see Debt sustainability –
Quantitative; Beyond the ratios, dated 28 July Sources: BIS, Economic Policy Uncertainty, UN, OECD, IMF,
European Commission, World Bank, BNP Paribas
EM ECONOMICS | EM STRATEGY
Swift at first, then slow: Fiscal consolidation challenging in most EMs
(budget balances, % of GDP)
Sources: IMF, BNP Paribas; forecasts are from the IMF
BNP Paribas fiscal scorecard for selected emerging markets
CEEMEA EGP ZAF HUF PLN RON TRY CZK SAR RUS
External
Financial stability
Governance
Debt dynamics
Financing needs
Relative fiscal
vulnerability
Latam and EM Asia BRA ARG COP MXN IDN IDR CNY CLP MYS KRW THB
External
Financial stability
Governance
Debt dynamics
Financing needs
Relative fiscal
vulnerability
Luiz Eduardo Peixoto, Emerging Markets Economist | BNP Paribas London branch
EM ECONOMICS – FISCAL POLICY
07/09/2021
EMERGING MARKETS RESEARCH | COMMODITIES | G10FX | CROSS-ASSET | EQUITY DERIVATIVES | G10 INTEREST RATES | EMERGING MARKETS | MACRO QUANT & DERIVATIVES |
CREDIT
8E M – LOCA L E YE S FOR A GLOB A L V IE W
| DEEP DIVE
Key dates: Change is coming
EM ECONOMICS | EM STRATEGY | MARKET ECONOMICSEM ECONOMICS | EM STRATEGY
Luiz Eduardo Peixoto, Emerging Markets Economist | BNP Paribas London branch
Elections return to the centre of the EM calendar: Polls suggest an anti-
incumbency wave, including in places where politics tends to punch above its
weight in local markets:
After Peru, Chile could be the next Latam country to see a groundswell
against incumbents, with a centre-right president replaced by a left-leaning
one in October, likely to be followed by Colombia in May.
In Russia (September) and Argentina (October), parliamentary elections are
unlikely to change the balance of power, but the share of seats held by ruling
parties is projected by several polls to fall, reflecting popular dissatisfaction
(see Russia and Argentina election trackers, dated 16 July and 6 September).
Brazil is seeing the contours of a political crisis, suggesting a noisy electoral
period until the October 2022 vote – the country is ranked lowest in our social
resilience index (see EM: Politics brings risks and opportunities, 12 June).
In Malaysia a change in administration has yet to prove its staying power and
the ability to vote through bills. The next election is due in June 2023 but could
be called earlier if political instability returns.
In South Africa, municipal elections could have wider implications than usual,
with the ruling ANC potentially grabbing less than 50% of the share of votes for
the first time in the democratic era, if pending legal challenges by opposition
parties prevent the party from listing candidates.
Scottish winds to power EM ESG bond issuance – but also scrutiny: As
COP26 in Glasgow gets closer, we expect more scrutiny of EM environmental and
energy policies. Some EMs will attract particular publicity, given their weight either
as major fossil-fuel exporters (GCC, Russia) or importers (China, India). On the
other hand, green-bond issuance is expected to receive a boost, as wealthier
nations pledge to fund clean projects and as funds expand their ESG targets.
As tapering looms, more eventful Fed and ECB meetings: As G10 banks
prepare to normalise monetary policies, we also highlight that the Fed and ECB
meetings in the coming months deserve watching for sudden policy turns, in
particular for the countries more reliant on foreign capital flows.
European Union council could see closer scrutiny of CE3: The first EU
council meeting is in October and could serve as stage for tension between CE3
countries and Brussels, in our view. The relationship became more relevant to
markets in the summer, after Warsaw pressed ahead with some changes to laws
and Budapest was confrontational towards European peers.
Main events affecting emerging markets in the coming months
2021 2022
September October November December Q1 Q2 Q3 Q4
Trade /
Foreign
Policy
Sep*: US-Russia
nuclear talks31 Oct–12 Nov: COP 26 Glasgow
11-17 Jan: Davos
Economic Forum
Apr: IMF spring
meetings
30*: FY22 US
funding deadline
11–17: IMF annual
meeting 30–31: G20 summit16–17: EU council (13:
EU FAC**) 4-20 Feb: 2022 Winter
Olympics (China)
Apr: China politburo
economic work mtg
21–22: EU council Nov/Dec*: ASEAN summit Jun*: WTO summit
Elections19: Russia parliament
election
15–16: Czech general
election
21: Chile general
election
*Dec: China policy
meetings
9 Mar: S. Korea
presidential election
TBC, Apr: Hungary,
Philippines general
elections 2 Oct: Brazil general
elections13 Mar: Colombia
parliament election
24: Argentina legislative
election2 N 19: Hong Kong general
election29 May: Colombia
presidential election27 Oct: South Africa
local elections2 Nov: South Africa
medium-term budget
Financial
*Sep: Ukraine rating
revision
*Dec: Romania rating
reviewFeb*: India, South
Africa’s national
budgets
Sep*: Mexico budgetOct-Nov: Malaysia,
Indonesia budgets*Nov: Bahrain and
Egypt rating reviews9: ECB rate 14: Fed rate
21: Fed rate 28: ECB rate 2: Fed rate 16: ECB rate
HighMediumLow
Scale: Our assessment of potential impact/risk
* Date not yet confirmed or estimated from previous occurrences .**FAC = EU foreign affairs council.
Sources: Bloomberg, Moody’s, Fitch, WSJ, FT, European Commission, BNP Paribas
EM ECONOMICS
07/09/2021
EMERGING MARKETS RESEARCH | COMMODITIES | G10FX | CROSS-ASSET | EQUITY DERIVATIVES | G10 INTEREST RATES | EMERGING MARKETS | MACRO QUANT & DERIVATIVES |
CREDIT
9E M – LOCA L E YE S FOR A GLOB A L V IE W
| DEEP DIVE
Latam
ECONOMICS
Gustavo Arruda, Head of Latam Research | Banco BNP Paribas Brasil S.A. | Siddharth Mathur, Head of Emerging Markets Research, Global Markets APAC | BNP Paribas Singapore Branch
OVERVIEWS BY REGION
Latin America returning to old days: We expect higher interest rates and noisy
politics for the rest of 2021 and in 2022.
No room to ease policy rates: In monetary policy, we expect Colombia to join
Brazil, Mexico and Chile in the hiking club. With inflation on the rise, we expect
central banks to deliver rates at or above neutral. Brazil will need to hike further,
and our above-consensus projection has hikes until Q1 2022. The Mexican
central bank is also likely to continue to tighten until 2022, in our view.
Due to its already positive output gap, Chile has just quickened its pace of rate
hikes and will reach above neutral in 2022, we believe. We expect Colombia’s
central bank to raise rates on 30 September to start balancing the faster-than-
anticipated growth recovery and rising inflation expectations.
Election agenda: Elections and street demonstrations are likely to keep markets
volatile and watching the political calendar.
Chile’s opinion polls suggest a second-round run-off in the November presidential
election. Regardless of who wins, we continue to see a weaker fiscal position
ahead. In Argentina, according to current polling, Argentina's legislative election
in November looks unlikely to favour the ruling coalition.
Fiscal challenges look set to dominate the 2022 election campaigns in both
Colombia and Brazil. While reforms need to move ahead, social tensions remain.
In Colombia, the government will try to pass a diluted version of the fiscal reforms
that triggered June’s demonstrations. In Brazil, the continued conflict between the
president and other institutions are likely to be reflected in public demonstrations,
with a possible market impact. The reformist agenda seems to be over until the
election in October 2022, we think.
EM Asia Q4 activity boost from reopening: Domestic activity is likely to
improve as vaccination plans proceed after a surge in infections in Q3 and
economies continue to move away from a zero-tolerance approach towards the
pandemic (see Covid-19 Delta variant: Economic risks may be overdone, 19
August). A key risk to the outlook is fading economic momentum in China,
especially amid higher risks related to policy and regulation.
Inflation likely to remain low: We see inflation continuing to fall and remain
below target. Recent inflation drivers are likely to weaken in the months ahead:
better behaved food prices, crude oil settling into a range and supply distortions
less severe than in the major developed markets. We expect slack demand to
become clearer in the inflation data, especially as base effects fade. India may be
an exception, especially if sub-par monsoon rains damage the summer crop.
External balances likely to continue to deteriorate: We expect demand for
imports to accelerate in Q4, as consumption and, to a lesser extent, investment
pick up alongside the gradual reopening of domestic activity. Together with a
slight slowing in external demand, especially if Chinese demand falls away
significantly, this is likely to weaken external balances in the region more broadly.
Tourism, considerably important to Thailand and Malaysia is likely to recover only
slowly and with a long lag.
Fiscal policy set to drive monetary policy: Markets in EM Asia are likely to be
differentiated by their policy choices. In Thailand, we expect substantial additional
fiscal spending and an increase in the public debt ceiling. Indonesia is, for now,
planning to return to deficits of below 3% by 2023, while in India and Malaysia
fiscal constraints might limit further government spending. In these last three
economies, monetary policy is likely to remain accommodative well into 2022.
By contrast, the fiscal spending taps in Korea are expected to continue to flow,
allowing a gradual normalisation of monetary policy; we expect another 25bp hike
in November, well ahead of the presidential election in March 2022.
Asia
75
85
95
105
115
125
Q4 Q2 Q4 Q2 Q4 Q2 Q4
2019 2020 2021 2022
EM aggregate BrazilQ4 2019 ChileThailand IndiaMexico Indonesia
Sources: IMF, BNP Paribas projections
GDP: Thailand slowest to recover as India and Indonesia power ahead; Brazil
and Mexico to stagnate, while Chile will remain the highlight (2019=100 sa)
07/09/2021
EMERGING MARKETS RESEARCH | COMMODITIES | G10FX | CROSS-ASSET | EQUITY DERIVATIVES | G10 INTEREST RATES | EMERGING MARKETS | MACRO QUANT & DERIVATIVES |
CREDIT
10E M – LOCA L E YE S FOR A GLOB A L V IE W
| DEEP DIVE
CE3 risk of overheating calls for policy response: We move our above-
consensus inflation forecast even higher. We see many reasons to believe the
inflation story in Poland, Hungary and the Czech Republic might not be transitory,
as the countries have some of the tightest labour markets in the world, triggering
fears of overheating economies. Stronger domestic demand is likely to lift
imports, widening external shortfalls, despite a strong export performance.
In response, we expect the central banks of Hungary and the Czech Republic to
continue their hiking cycles into next year, bringing policy rates to above pre-crisis
levels (including our out-of-consensus forecast for the Czech policy rate to rise to
2.5% by end-2022). While the Polish central bank has kept a strikingly dovish
stance so far, we continue to expect a hiking cycle to start with 15bp in November.
Egypt’s tough choice ahead: Inflation came in below our expectation in H1,
although yields on government debt (t-bills and bonds) have struggled to ease
accordingly. That said, a steady rise in inflation, including core pressures, is likely
to thwart the central bank’s quest for monetary easing. With inflation settling at
higher levels, we now expect a cut of 50bp in Q4 and no cuts in 2022 (rather than
the previously expected 100bp cuts in 2021, respectively).
More positively, Egypt’s likely inclusion in the JP Morgan’s GBI-EM index and
‘Euroclearability’ for the government’s local-currency-denominated bonds are
likely to contain the pressure on domestic yields as passive inflows are unlocked.
Russia best in class: We raise our already above-consensus inflation
projections as prices will remain stickier than we thought, hovering above 6% in
2021 and 5% in 2022. This is likely to lead Russia’s central bank to hike by more.
We still see rates at end-2021 at 7.50% and raise our end-2022 forecast by
100bp to 8.50%.
We see little initial growth impact from higher rates; part of the monetary
tightening will be the central bank fighting fires with increased state spending and
continued credit subsidies to last until mid-2022. Thus, we maintain an above-
consensus 4.5% y/y GDP projection for this year and 3.3% next year, before a
return to pre-pandemic sluggishness.
Amid a diplomatic thaw with the West, Russia’s top-notch macro fundamentals
are likely to shine again. While we expect ongoing spending, tax tweaks and
extra oil revenue are likely to lead debt levels down from 19% to 16% in 2023, a
striking difference from most EMs (see Debt sustainability – Quantitative: Beyond
the ratios, dated 28 July).
South Africa’s benign external conditions ease vulnerabilities: Growth
momentum slowed into Q3, exacerbated by July’s riots (see South Africa: Picking
up the pieces, dated 21 July). Though we have upgraded our 2021 GDP growth
estimate to 5.4% mainly as a result of historical statistical revisions, we judge the
risks to our forecast to be on the downside. External tailwinds remain a strong
advantage to net trade, however, and we expect a 3.8% current-account surplus
in 2021, a post-democracy high.
Underlying inflation remains benign, helped by suppressed wage growth and a
stronger ZAR. Though the South African Reserve Bank is in no rush to hike rates,
a narrowing output gap and global shift to tighter monetary policy are likely to
justify a 25bp hike in November. We remove our 25bp September hike.
New finance minister Enoch Godongwana’s commitment to fiscal consolidation
will be tested in Q4. November’s mid-term budget is likely to maintain a
commitment to fiscal restraint alongside better revenue collection (see South
Africa: A fiscal upside scenario, dated 29 June), though we see a risk from calls
for a rise in social protection spending costing at least 0.5% of GDP a year.
CEEMEA
ECONOMICS
Sources: IMF, BNP Paribas projections
Wojciech Stepien CFA, Economist, Central and Eastern Europe | Bank BGŻ BNP Paribas SA I Mohamed Abdelmeguid, Middle East and North Africa Economist | Luiz Eduardo Peixoto, Economist, Emerging Markets |
BNP Paribas London branch | Jeffrey Schultz, Senior economist, South Africa | BNP Paribas South Africa branch
GDP: South Africa below pre-pandemic; CE3 outperforms (2019=100 sa)
OVERVIEWS BY REGION
80
85
90
95
100
105
110
Q4 Q2'20 Q4'20 Q2-21 Q4'21 Q4'22
2019 2020 2021 2022
EM aggregate Russia
CEEMEA Q4 2019
South Africa Czech Rep.
Poland Hungary
07/09/2021
EMERGING MARKETS RESEARCH | COMMODITIES | G10FX | CROSS-ASSET | EQUITY DERIVATIVES | G10 INTEREST RATES | EMERGING MARKETS | MACRO QUANT & DERIVATIVES |
CREDIT
11E M – LOCA L E YE S FOR A GLOB A L V IE W
| DEEP DIVE
EM central banks: Cheatsheet
EM Markets 360 BNP Paribas team. (1) For India, 2020, 2021, and 2022 refer to the Repo rate. Previous years refer to the Reverse Repo rate. This changes the 2021/2022 forecast from (3.35,3.35) to (4.00,
4.50), as of July 2021. India’s annual forecasts are for the fiscal year (April–March)
Source: BNP Paribas
Almost all EM central banks eased policy in response to the pandemic shock, but we now see increasing differentiation into two rough categories: ‘flippers ‘and ‘floppers’.
Outlook for selected EM central banks
FORECASTS – EM CENTRAL BANKS
Current policy rates
What we expect
Year-end policy rate Next moveComments
2021 2022 2023 Size Timing
‘Flippers’ In the face of rising inflation pressures, these central banks cannot stay in denial for too long in our view, and will therefore hike soon if they have not already.
Brazil 5.25% 7.50% 8.50% 6.50% +100bp Sep 2021The BCB now calls for above-neutral rates to ensure that the inflation target is achieved, and we think high
inflation expectations will drive further rate hikes.
Chile 1.50% 2.75% 4.00% 3.50% +75bp Oct 2021BCCh has little room to return to a gradual normalisation strategy, we think. Above-target inflation expectations, a
positive output gap, and high domestic policy uncertainty underpin our view.
Colombia 1.75% 3.00% 4.50% 4.75% +25bpSep
2021
In our view, BanRep will accelerate the pace of rate hikes from the October meeting in response to rising inflation
expectations and the fiscal and external imbalances.
Czech Rep. 0.75% 1.75% 2.50% 2.50% +50bp Sep 2021 We expect continued aggressive tightening to push the policy rate above pre-crisis levels next year.
Hungary 1.50% 2.25% 2.50% 2.25% +30bp Sep 2021 The tightening cycle will continue this year, we expect, but slow down considerably next year.
Mexico 4.50% 5.25% 6.00% 6.50% +25bp Sep 2021While we think Banxico will cite persistent inflation pressures and the unexpectedly fast narrowing of the output
gap as reasons to normalise rates, a gradual pace and split decisions are likely to add uncertainty.
Poland 0.10% 0.25% 0.75% 1.25% +15bp Nov 2021 We think the NBP will remain one of the most dovish EM central banks, with a reluctant tightening cycle.
Russia 6.50% 7.50% 8.50% 7.00% +50bp Sep 2021 Lingering inflation pressures look set to take rates closer to the level the CBR considers neutral.
South Africa 3.50% 3.75% 4.75% 5.50% +25bp Nov 2021 Normalisation will be slow, we think, due to benign inflation and economic growth challenges.
‘Floppers’ Some central banks will be keen to keep policy in accommodative territory for longer, we think
Indonesia 3.50% 3.50% 3.50% 4.50% – 2023
Low inflation and a Covid-19 surge – leading to lockdowns and supply disruptions across the region and delaying
the economic recovery – will mean ASEAN countries do not start to tighten policies until 2023, we think.Malaysia 1.75% 1.75% 1.75% 2.50% – 2023
Thailand 0.50% 0.50% 0.50% 1.50% – 2023
Others These central banks fall outside our two categories
Egypt 8.25% 7.75% 7.75% 7.25% −50bp Q4 2021Weak consumer and business demand conditions could lead to a further 50bp rate cut before year-end, we think,
enabled by easing inflation in Q4 on the back of favourable base effects.
India 4.00% 4.00% 4.50% 5.00% +50bp 2022At some point next year, once the economy recovers more fully, the RBI will need to start hiking rates on inflation
concerns, in our view. For now, it is likely to shrug off longstanding price pressures and macro imbalances.
South Korea 1.00% 1.25% 1.25% 1.50% +25bp Nov 2021The BoK has already started to hike rates and is set to do so again, as concerns about financial stability outweigh
those about near-term growth.
Turkey 19.00% 19.00% 13.50% 11.50% −300bp Q1 2022 Bucking the global trend, rate cuts will start early next year, we think, once inflation falls more consistently.
07/09/2021
EMERGING MARKETS RESEARCH | COMMODITIES | G10FX | CROSS-ASSET | EQUITY DERIVATIVES | G10 INTEREST RATES | EMERGING MARKETS | MACRO QUANT & DERIVATIVES |
CREDIT
12E M – LOCA L E YE S FOR A GLOB A L V IE W
| DEEP DIVE
EM forecasts: Cheatsheet
EM Markets 360 BNP Paribas team. (1) India’s annual forecasts for GDP growth, current account and budget balances are all for the fiscal year (April–March)
Source: BNP Paribas
FORECASTS
GDP growth (% y/y) CPI inflation (% y/y) Policy rates (% pa) Current account (% GDP) Budget balance (% GDP)
(% y/y) 2021 2022 2023 2021 2022 2023 2021 2022 2023 2021 2022 2023 2021 2022 2023
EM aggregate 5.4 5.6 4.0 5.2 4.5 3.8 4.85 5.01 4.97 1.3 1.1 0.9 -5.3 -3.9 -3.3
Latam 6.2 2.1 2.1 6.2 5.3 3.6 5.90 6.89 6.11 -0.8 -1.3 -1.3 -6.4 -5.3 -4.1
Argentina 7.0 1.5 2.5 49.0 56.0 42.0 30.00 50.00 50.00 1.2 0.8 0.5 -5.9 -4.5 -3.0
Brazil 5.0 1.5 2.0 7.8 6.3 3.6 7.50 8.50 6.50 0.5 -1.5 -2.5 -6.4 -7.2 -6.6
Chile 10.0 3.0 2.0 4.1 4.4 3.0 2.75 4.00 3.50 -2.0 -1.5 -1.5 -9.0 -5.5 -3.5
Colombia 9.0 3.5 3.0 3.3 4.3 3.5 3.00 4.50 4.75 -4.5 -4.0 -3.5 -8.6 -7.0 -5.0
Mexico 6.0 2.5 2.0 5.4 4.6 3.7 5.25 6.00 6.50 0.8 -0.3 0.3 -2.1 -2.5 -2.6
CEEMEA 5.0 4.0 3.4 6.6 5.7 4.7 6.49 6.07 5.54 2.4 2.0 1.5 -4.9 -3.3 -2.9
Bahrain 2.8 2.7 2.5 0.5 2.4 1.1 1.00 1.00 1.50 -4.3 -3.6 -4.4 -6.0 -4.8 -4.5
Czech Rep. 3.4 5.0 3.5 3.4 3.1 2.5 1.75 2.50 2.50 1.8 0.8 0.3 -7.2 -4.6 -3.7
Egypt 4.6 5.6 5.9 5.5 7.0 6.3 7.75 7.75 7.25 -3.7 -2.8 -2.2 -7.4 -6.9 -5.6
Hungary 7.8 4.7 4.3 4.7 3.8 3.5 2.25 2.50 2.25 -0.3 -0.5 -0.7 -7.5 -5.5 -3.9
Kuwait 0.3 3.7 2.5 2.8 3.1 2.5 1.50 1.50 2.00 23.3 21.9 17.7 -12.8 -7.4 -8.3
Oman 1.4 3.7 3.2 1.8 1.2 1.9 0.50 0.50 1.00 -1.9 -2.2 -1.3 -7.9 -7.2 -5.0
Poland 5.3 5.4 4.5 4.5 4.2 3.6 0.25 0.75 1.25 1.8 1.3 0.9 -5.0 -4.0 -3.7
Qatar 0.5 2.1 2.2 2.1 3.4 1.9 1.00 1.00 1.50 5.8 6.1 6.5 1.9 4.9 3.1
Romania 8.4 4.7 4.5 4.3 3.6 3.3 1.50 2.00 2.25 -6.0 -5.0 -4.5 -7.4 -4.8 -4.0
Russia 4.5 3.3 2.6 6.0 5.0 4.1 7.50 8.50 7.50 4.5 3.5 3.2 0.5 1.1 0.5
Saudi Arabia 2.1 4.5 2.6 3.8 2.7 1.9 1.00 1.00 1.50 3.9 3.7 2.6 -2.2 -1.6 -1.3
South Africa 5.4 1.8 1.9 4.4 4.2 4.2 3.75 4.75 5.50 3.8 -1.0 -1.5 -7.4 -5.8 -4.3
Turkey 10.6 3.5 4.1 17.3 13.9 10.6 19.00 13.50 11.00 -2.3 -2.2 -2.0 -2.5 -2.7 -2.5
UAE 2.0 4.4 3.3 0.7 0.9 1.8 1.50 1.50 2.00 6.8 7.6 6.2 1.8 2.5 2.5
EM Asia 5.2 8.3 5.3 3.8 3.2 3.2 3.18 3.49 4.10 0.5 1.0 1.4 -5.2 -4.2 -3.6
China 8.2 5.6 5.4 1.2 2.8 2.5 2.95 2.95 2.95 1.7 1.7 1.2 -2.5 -2.7 -2.5
India(1) 7.0 11.2 6.2 5.4 4.5 4.3 4.00 4.50 5.00 -1.4 -1.7 -2.0 -7.2 -5.9 -5.6
Indonesia 2.8 5.6 5.1 1.5 1.8 2.3 3.50 3.50 4.50 -1.4 -1.5 -2.0 -6.0 -4.8 -3.5
Malaysia 4.1 5.6 4.9 2.3 0.4 1.8 1.75 1.75 2.50 3.1 3.0 2.5 -6.1 -3.8 -3.0
South Korea 3.9 3.0 2.5 2.1 1.7 1.7 1.00 1.25 1.50 4.4 4.0 4.0 -4.0 -3.2 -3.1
Thailand 0.9 3.4 4.0 0.7 1.0 1.0 0.50 0.50 1.50 -3.2 0.5 4.5 -5.2 -4.8 -3.7
07/09/2021
EMERGING MARKETS RESEARCH | COMMODITIES | G10FX | CROSS-ASSET | EQUITY DERIVATIVES | G10 INTEREST RATES | EMERGING MARKETS | MACRO QUANT & DERIVATIVES |
CREDIT
13E M – LOCA L E YE S FOR A GLOB A L V IE W
| DEEP DIVE
MARCELO CARVALHO *
Head of Emerging Markets ResearchBNP Paribas London Branch
LATAM APAC
Burak BaskurtChief EM Strategist
BNP Paribas London Branch
Luiz Eduardo PeixotoEconomist, Emerging MarketsBNP Paribas London Branch
Mohamed AbdelmeguidEconomist, MENABNP Paribas London Branch
Tatiana TchembarovaCEEMEA Credit AnalystBNP Paribas London Branch
Mikhail LiluashviliStrategist, CEEMEABNP Paribas London Branch
Jeffrey SchultzSenior Economist, South AfricaBNP Paribas South Africa Branch
Nic BorainPolitics Analyst, South AfricaBNP Paribas South Africa Branch
Michal DybulaChief Economist, Central
and Eastern EuropeBank BGŻ BNP Paribas SA
Wojciech Stepien CFAEconomist, Central and
Eastern EuropeBank BGŻ BNP Paribas SA
Hakan AklarChief Economist, TurkeyTürk Ekonomi Bankasi A.S.
Okan ErtemSenior Economist, TurkeyTürk Ekonomi Bankasi A.S.
Yasemin BasygitEconomist, TurkeyTürk Ekonomi Bankasi A.S.
Florencia VazquezEconomist, ArgentinaBNP Paribas Sucursal Buenos Aires
Felipe KleinEconomist, Colombia, ChileBNP Paribas Sucursal Buenos Aires
Pamela Diaz LoubetEconomist, MexicoBNP Paribas Securities Corp
Thais TeixeiraLatam Economics AssistantBanco BNP Paribas Brasil S.A.
Luca MaiaFX and Rates Strategist,
EM/LatamBanco BNP Paribas Brasil S.A.
Michelle HwangFX and Rates Strategist,
EM/LatamBanco BNP Paribas Brasil S.A.
Andre DigiacomoFX and Rates Strategist,
EM/LatamBanco BNP Paribas Brasil S.A.
Luryê BindaLatam Strategy AssistantBanco BNP Paribas Brasil S.A.
Siddharth Mathur
Head of Emerging Markets Research, Global
Markets APACBNP Paribas Singapore Branch
Arup RahaHead of ASEAN EconomicsBNP Paribas Singapore Branch
Michael LohEM Asia FX & Rates
StrategistBNP Paribas Singapore Branch
Hiroshi ShiraishiSenior Economist, South Korea & JapanBNP Paribas Securities (Japan) Limited
* reporting to Global Head of Markets 360
Gustavo ArrudaHead of Latam Research
Banco BNP Paribas Brasil S.A.
CEEMEA
OUR TEAM
07/09/2021
LEGAL NOTICEThis document or where relevant the document/communication to which this notice relates (all references in this notice to a document or communication shall be construed as referring to this document or such
document/communication related to this notice, as appropriate) has been written by our Strategist and Economist teams within the BNP Paribas group of companies (collectively “BNPP”); it does not purport to be an
exhaustive analysis, and may be subject to conflicts of interest resulting from their interaction with sales and trading which could affect the objectivity of this report. This document is non-independent research for the
purpose of the UK Financial Conduct Authority rules. For the purposes of the recast Markets in Financial Instruments Directive (2014/65/EU) (MiFID II), non-independent research constitutes a marketing communication. This
document is not investment research for the purposes of MiFID II. It has not been prepared in accordance with legal requirements designed to provide the independence of investment research, and is not subject to any
prohibition on dealing ahead of the dissemination of investment research.
The content in this document/communication may also contain “Research” as defined under the MiFID II unbundling rules. If the document/communication contains Research, it is intended for those firms who are either in
scope of the MiFID II unbundling rules and have signed up to one of the BNPP Global Markets Research packages, or firms that are out of scope of the MiFID II unbundling rules and therefore not required to pay for Research
under MiFID II. Please note that it is your firm’s responsibility to ensure that you do not view or use the Research content in this document if your firm has not signed up to one of the BNPP Global Markets Research
packages, except where your firm is out of scope of the MiFID II unbundling rules.
Please note any reference to EU legislation or requirements herein or in the document should be read as a reference to the relevant EU legislation or requirement and/or its UK equivalent legislation or requirement, as
appropriate, where applicable, and as the context requires. For example references to “MiFID II” means Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments
and amending Directive 2002/92/EC and Directive 2011/61/EU. and/or such directive as implemented in UK law through the relevant UK legislation and PRA and FCA rules as may give effect to Directive 2014/65/EU, as
appropriate, where applicable, and as the context requires.
STEER™ is a trade mark of BNPP.
MARKETS 360 is a trade mark of BNP Paribas
This document constitutes a marketing communication and has been prepared by BNPP for, and is directed at, (a) Professional Clients and Eligible Counterparties as defined by the recast Markets in Financial Instruments Directive
(2014/65/EU) (MiFID II), and (b) where relevant, persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, and at
other persons to whom it may lawfully be communicated (together “Relevant Persons”) under the regulations of any relevant jurisdiction. Any investment or investment activity to which this document relates is available only to and will be
engaged in only with Relevant Persons. Any person who is not a Relevant Person should not act or rely on this document or its content.
Securities described herein or in the document may not be eligible for sale in all jurisdictions or to certain categories of investors.
The information and opinions contained in this document have been obtained from, or are based on, public sources believed to be reliable, but there is no guarantee of the accuracy, completeness or fitness for any particular purpose of such
information and such information may not have been independently verified by BNPP or by any person. None of BNPP, any of its subsidiary undertakings or affiliates or its members, directors, officers, agents or employees accepts any
responsibility or liability whatsoever or makes any representation or warranty, express or implied, as to the accuracy and completeness of the information or any opinions based thereon and contained in this document and it should not be
relied upon as such.
This document does not constitute or form any part of any offer to sell or issue and is not a solicitation of any offer to purchase any financial instrument, nor shall it or any part of it nor the fact of its distribution form the basis of, or be relied on,
in connection with any contract or investment decision. To the extent that any transaction is subsequently entered into between the recipient and BNPP, such transaction will be entered into upon such terms as may be agreed by the parties in
the relevant documentation.
Information and opinions contained in this document are published for the information of recipients, but are not to be relied upon as authoritative or taken in substitution for the exercise of judgment by any recipient, are subject to change
without notice and not intended to provide the sole basis of any evaluation of the instruments discussed herein or in the document. In providing this document, BNPP does not offer investment, financial, legal, tax or any other type of advice to,
nor has any fiduciary duties towards, recipients. Any reference to past performance is not indicative of future performance, which may be better or worse than prior results. Any hypothetical, past performance simulations are the result of
estimates made by BNPP, as of a given moment, on the basis of parameters, market conditions, and historical data selected by BNPP, and should not be used as guidance, in any way, of future performance. To the fullest extent permitted by
law, no BNPP group company accepts any liability whatsoever (including in negligence) for any direct or consequential loss arising from any use of or reliance on material contained in this document even where advised of the possibility of
such losses. All estimates and opinions included in this document are made as of the date of this document. Unless otherwise indicated in this document there is no intention to update this document.
BNPP may make a market in, or may, as principal or agent, buy or sell securities of any issuer or person mentioned in this document or derivatives thereon. Prices, yields and other similar information included in this document are included for
information purposes however numerous factors will affect market pricing at any particular time, such information may be subject to rapid change and there is no certainty that transactions could be executed at any specified price.
BNPP may have a financial interest in any issuer or person mentioned in this document, including a long or short position in their securities and/or options, futures or other derivative instruments based thereon, or vice versa. BNPP, including
its officers and employees may serve or have served as an officer, director or in an advisory capacity for any person mentioned in this document. BNPP may, from time to time, solicit, perform or have performed investment banking,
underwriting or other services (including acting as adviser, manager, underwriter or lender) within the last 12 months for any person referred to in this document. BNPP may be a party to an agreement with any person relating to the
production of this document. BNPP may to the extent permitted by law, have acted upon or used the information contained herein or in the document, or the analysis on which it was based, before the document was published. BNPP may
receive or intend to seek compensation for investment banking services in the next three months from or in relation to any person mentioned in this document. Any person mentioned in this document may have been provided with relevant
sections of this document prior to its publication in order to verify its factual accuracy.
This document is for information purposes only and there is no assurance that a transaction(s) will be entered into on such indicative terms. Any indicative price(s) contained herein or in the document have been prepared in good faith in
accordance with BNPP’s own internal models and calculation methods and/or are based on or use available price sources where considered relevant. Indicative price(s) based on different models or assumptions may yield different results.
Numerous factors may affect the price(s), which may or may not be taken into account. Therefore, these indicative price(s) may vary significantly from indicative price(s) obtained from other sources or market participants. BNPP expressly
disclaims any responsibility for the accuracy or completeness of its own internal models or calculation methods, the accuracy or reliability of any price sources used, any errors or omissions in computing or disseminating these indicative
price(s), and for any use you make of the price(s) provided. The indicative price(s) do not represent (i) the actual terms on which a new transaction could be entered into, (ii) the actual terms on which any existing transactions could be
unwound, (iii) the calculation or estimate of an amount that would be payable following an early termination of the transactions or (iv) the price(s) given to the transactions by BNPP in its own books of account for financial reporting, credit or
risk management purposes. As an investment bank with a wide range of activities, BNPP may face conflicts of interest, which are resolved under applicable legal provisions and internal guidelines. You should be aware, however, that BNPP
may engage in transactions in a manner inconsistent with the views expressed in this document, either for its own account or for the account of its clients.
This document may contain certain performance data based on back-testing, i.e. simulations of performance of a strategy, index or assets as if it had actually existed during a defined period of time. To the extent any such performance data is
included, the scenarios, simulations, development expectations and forecasts contained in this document are for illustrative purposes only. All estimates and opinions included in this document constitute the judgment of BNPP and its affiliates
as of the date of the document and may be subject to change without notice. This type of information has inherent limitations which recipients must consider carefully. While the information has been prepared in good faith in accordance with
BNPP’s own internal models and other relevant sources, an analysis based on different models or assumptions may yield different results. Unlike actual performance records, simulated performance returns or scenarios may not necessarily
reflect certain market factors such as liquidity constraints, fees and transactions costs. Actual historical or back tested past performance does not constitute an indication of future results or performance.
This document is only intended to generate discussion regarding particular products and investments and is subject to change or may be discontinued. We are willing to discuss it with you on the understanding that you have sufficient
knowledge, experience and professional advice to understand and make your own independent evaluation of the merits and risk of the information and any proposed structures. The information contained herein or in the document is not and
under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein or in the document, or solicitation of an offer to buy securities described herein or in the document, in
Canada, the U.S. or any other province or territory nor shall it be deemed to provide investment, tax, accounting or other advice. Transactions involving the product(s) described in this document may involve a high degree of risk and the value
of such transactions may be highly volatile. Such risks include, without limitation, risk of adverse or unanticipated market developments, risk of counterparty or issuer default, risk of adverse events involving any underlying reference obligation
or entity and risk of illiquidity. In certain transactions, counterparties may lose their entire investment or incur an unlimited loss.
07/09/2021
LEGAL NOTICEThe information relating to performance contained in this document is illustrative and no assurance is given that any indicated returns, performance or results will be achieved. Moreover, past performance is not indicative of future results.
Information herein or in the document is believed reliable but BNPP and its affiliates do not warrant or guarantee its completeness or accuracy. All information, terms and pricing set forth herein or in the document reflect our judgment at the
date and time hereof and are subject to change without notice. In the event that we were to enter into a transaction with you, we will do so as principal (and not as agent or in any other capacity, including, without limitation, as your fiduciary,
advisor or otherwise). Only in the event of a potential transaction will an offering document be prepared, in which case, you should refer to the prospectus or offering document relating to the above potential transaction which includes
important information, including risk factors that relate to an investment in the product(s) described herein or in the document.
Prior to transacting, you should ensure that you fully understand (either on your own or through the use of independent expert advisors) the terms of the transaction and any legal, tax and accounting considerations applicable to them. You
should also consult with independent advisors and consultants (including, without limitation, legal counsel) to determine whether entering into any securities transactions contemplated herein or in the document would be contrary to local
laws. Unless the information contained herein or document/communication to which this notice relates is made publicly available by BNPP, it is provided to you on a strictly confidential basis and where it is provided to you on a strictly
confidential basis you agree that it may not be copied, reproduced or otherwise distributed by you, whether in whole or in part (other than to your professional advisers), without our prior written consent.. Neither we, nor any of our affiliates,
nor any of their respective directors, partners, officers, employees or representatives accepts any liability whatsoever for any direct or consequential loss arising from any use of this document or its content; and any of the foregoing may from
time to time act as manager, co-manager or underwriter of a public offering or otherwise, in the capacity of principal or agent, deal in, hold or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to
the securities or related derivatives that are discussed herein or in the document. BNPP and its affiliates may (or may in the future) hold a position or act as a market maker in the financial instruments discussed, or act as an advisor, manager,
underwriter or lender to such issuer. In no circumstances shall BNPP or its affiliates be obliged to disclose any information that it has received on a confidential basis or to disclose the existence thereof.
The information presented herein or in the document does not comprise a prospectus of securities for the purposes of EU Regulation (EU) 2017/1129 (as amended from time to time).
This document was produced by a BNPP group company. This document is for the use of intended recipients and may not be reproduced (in whole or in part) or delivered or transmitted to any other person without the prior written consent of
BNPP. By accepting or accessing this document you agree to this.
For country- specific disclaimers (United States, Canada, United Kingdom, France, Germany, Belgium, Ireland, Italy, Netherlands, Portugal, Spain, Switzerland, Brazil, Turkey, Israel, Bahrain, South Africa, Australia, China, Hong Kong,
India, Indonesia, Japan, Malaysia, Singapore, South Korea, Taiwan, Thailand, Vietnam) please type the following URL to access our legal notices:
https://globalmarkets.bnpparibas.com/gm/home/Markets_360_Country_Specific_Notices.pdf
Some or all of the information contained in this document may already have been published on MARKETS 360TM Portal
© BNPP (2021). All rights reserved.
IMPORTANT DISCLOSURES by producers and disseminators of investment recommendations for the purposes of the Market Abuse Regulation:
Although the disclosures provided herein or in the document have been prepared on the basis of information we believe to be accurate, we do not guarantee the accuracy, completeness or reasonableness of any such disclosures. The
disclosures provided herein or in the document have been prepared in good faith and are based on internal calculations, which may include, without limitation, rounding and approximations.
BNPP and/or its affiliates may be a market maker or liquidity provider in financial instruments of the issuer mentioned in the recommendation.
BNPP and/or its affiliates may provide such services as described in Sections A and B of Annex I of MiFID II (Directive 2014/65/EU), to the Issuer to which this investment recommendation relates. However, BNPP is unable to disclose
specific relationships/agreements due to client confidentiality obligations.
Section A and B services include A. Investment services and activities: (1) Reception and transmission of orders in relation to one or more financial instruments; (2) Execution of orders on behalf of clients; (3) Dealing on own account; (4)
Portfolio management; (5) Investment advice; (6) Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis; (7) Placing of financial instruments without a firm commitment basis; (8) Operation of
an MTF; and (9) Operation of an OTF. B. Ancillary services: (1) Safekeeping and administration of financial instruments for the account of clients, including custodianship and related services such as cash/collateral management and
excluding maintaining securities accounts at the top tier level; (2) Granting credits or loans to an investor to allow him to carry out a transaction in one or more financial instruments, where the firm granting the credit or loan is involved in the
transaction; (3) Advice to undertakings on capital structure, industrial strategy and related matters and advice and services relating to mergers and the purchase of undertakings; (4) Foreign exchange services where these are connected to
the provision of investment services; (5) Investment research and financial analysis or other forms of general recommendation relating to transactions in financial instruments; (6) Services related to underwriting; and (7) Investment services
and activities as well as ancillary services of the type included under Section A or B of Annex 1 related to the underlying of the derivatives included under points (5), (6), (7) and (10) of Section C (detailing the MiFID II Financial Instruments)
where these are connected to the provision of investment or ancillary services.
BNPP and/or its affiliates do not, as a matter of policy, permit pre-arrangements with issuers to produce recommendations. BNPP and/or its affiliates as a matter of policy do not permit issuers to review or see unpublished recommendations.
BNPP and/or its affiliates acknowledge the importance of conflicts of interest prevention and have established robust policies and procedures and maintain effective organisational structure to prevent and avoid conflicts of interest that could
impair the objectivity of this recommendation including, but not limited to, information barriers, personal account dealing restrictions and management of inside information.
BNPP and/or its affiliates understand the importance of protecting confidential information and maintain a “need to know” approach when dealing with any confidential information. Information barriers are a key arrangement we have in place
in this regard. Such arrangements, along with embedded policies and procedures, provide that information held in the course of carrying on one part of its business to be withheld from and not to be used in the course of carrying on another
part of its business. It is a way of managing conflicts of interest whereby the business of the bank is separated by physical and non-physical information barriers. The Control Room manages this information flow between different areas of the
bank where confidential information including inside information and proprietary information is safeguarded. There is also a conflict clearance process before getting involved in a deal or transaction.
In addition, there is a mitigation measure to manage conflicts of interest for each transaction with controls put in place to restrict the information flow, involvement of personnel and handling of client relations between each transaction in such
a way that the different interests are appropriately protected. Gifts and Entertainment policy is to monitor physical gifts, benefits and invitation to events that is in line with the firm policy and Anti-Bribery regulations. BNPP maintains several
policies with respect to conflicts of interest including our Personal Account Dealing and Outside Business Interests policies which sit alongside our general Conflicts of Interest Policy, along with several policies that the firm has in place to
prevent and avoid conflicts of interest.
The remuneration of the individual producer of the investment recommendation may be linked to trading or any other fees in relation to their global business line received by BNPP and/or affiliates.
IMPORTANT DISCLOSURES by disseminators of investment recommendations for the purposes of the Market Abuse Regulation:
Where relevant, the BNPP disseminator of the investment recommendation is identified in the document/communication including information regarding the relevant competent authorities which regulate the disseminator. The name of the
individual producer within BNPP or an affiliate and the legal entity the individual producer is associated with is identified where relevant, in the document/communication. The date and time of the first dissemination of this investment
recommendation by BNPP or an affiliate is addressed where relevant, in the document/communication. Where this investment recommendation is communicated by Bloomberg chat or by email by an individual within BNPP or an affiliate, the
date and time of the dissemination by the relevant individual is contained, where relevant, in the communication by that individual disseminator.
The disseminator and producer of the investment recommendations are part of the same group, i.e. the BNPP group. The relevant Market Abuse Regulation disclosures required to be made by producers and disseminators of investment
recommendations are provided by the producer for and on behalf of the BNPP Group legal entities disseminating those recommendations and the same disclosures also apply to the disseminator.
If an investment recommendation is disseminated by an individual within BNPP or an affiliate via Bloomberg chat or email, the disseminator’s job title is available in their Bloomberg profile or bio. If an investment recommendation is
disseminated by an individual within BNPP or an affiliate via email, the individual disseminator’s job title is available in their email signature.
For further details on the basis of recommendation specific disclosures available at this link (e.g. valuations or methodologies, and the underlying assumptions, used to evaluate financial instruments or issuers, interests or conflicts that could
impair objectivity recommendations or to 12 month history of recommendations history) are available at MARKETS 360TM Portal. If you are unable to access the website please contact your BNPP representative for a copy of this document.