1、 Disclosures&Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix,and with the Disclaimer,which forms part of it.Issuer of report:The Hongkong and Shanghai Banking Corporation Limited View HSBC Global Research at:https:/ The end of the Fe
2、ds hiking cycle may not benefit EM FX since it could portend a larger slowdown in global growth later We favour quality over quantity for EM FX Hope for green shoots,a potential US-China trade deal,and China index inclusions are the key themes ahead In the coming months,we believe there are three im
3、portant themes that will shape our thinking towards EM FX.First,there is a growing debate on whether the global economy can stabilise as policies turn accommodative,and what this could mean for EM currencies.Second,US-China trade tensions are still in the spotlight,especially given the delay in reac
4、hing an outcome but also when trying to identify which countries could temporarily lose out if an agreement is reached.Lastly,Chinas capital account is opening up with bond and equity inflows accelerating,which should increasingly change the RMBs behaviour but also see some modest portfolio shifts w
5、ithin EM.A slowing global growth environment entails investors maintaining a continued distinction between“good”and“bad”high-yielding EM currencies,even if the Fed policy risks have subsided.Our preference has been centred on those with more credible macro policies,such as the RUB,the IDR,the BRL,an
6、d more recently the COP,although additional spot outperformance by some of these could prove difficult,given political risks.Similarly,a distinction is also needed with low-yielding currencies prefer the RMB,the PLN,and the HUF to the SGD and the THB in the near term.In Asia,we revised our end-2019
7、USD-RMB forecast to 6.75(from 6.95),factoring in recent developments,which suggest tariff removal in some form is now highly likely.The likelihood for the MASs next policy move in April has shifted for us from being in favour of another slope steepening to now being in favour of a pause.Elsewhere,th
8、e THB is likely to underperform as negative seasonality starts in 2Q.In CEEMEA,we now see EUR-PLN falling to 4.10(from 4.50)by end-2019.Our bullish view is more strategic,as we believe that strong cyclical drivers,enhanced by the new fiscal plan,will drive the currency higher in the medium term.In E
9、gypt,we expect USD-EGP to average around 18 over the remainder of the year.We also included our view on the Ghanaian cedi.In LatAm,we lowered our USD-CLP and USD-COP forecasts to 650(from 700)and 3,095(from 3,300),respectively,for end-2019.Lastly,Argentinas central bank(BCRA)decided to tighten its m
10、onetary policy stance and will increase the top and bottom of the FX non-intervention band by a 1.75%monthly pace starting in April,down from the current 2.00%.27 March 2019 Paul Mackel Head of Emerging Markets FX Research The Hongkong and Shanghai Banking Corporation Limited .hk+852 2996 6565 Ju Wa
11、ng Senior FX Strategist The Hongkong and Shanghai Banking Corporation Limited .hk+852 2822 4340 Joey Chew Senior Asia FX Strategist The Hongkong and Shanghai Banking Corporation Limited .hk+852 2996 6568 Madan Reddy Asia FX Strategist The Hongkong and Shanghai Banking Corporation Limited .hk+852 282
12、2 1672 Murat Toprak CEEMEA FX Strategist HSBC Bank plc +44 20 7991 5415 Dominic Bunning Senior FX Strategist HSBC Bank plc +44 20 7992 2113 Daragh Maher Head of FX Strategy,US HSBC Securities(USA)I+1 212 525 4114 Clyde Wardle Senior EM FX Strategist HSBC Securities(USA)I+1 212 525 3345 David Duong,C
13、FA Senior FX Strategist,LatAm HSBC Securities(USA)I+1 212 525 3277 Mark McDonald Head of Data Science and Analytics HSBC Bank plc +44 20 7991 5966 Emerging Markets FX Roadmap Currencies Emerging Markets It always pays to buy quality Currencies Emerging Markets 27 March 2019 2 Asia Asian currencies h
14、ave generally been on an uptrend year-to-date,as US-China trade tensions eased and the US Treasury yields fell.But there were also brief periods of depreciation when global growth concerns rose to the fore,for example in early March,when the ECB turned more dovish than expected.This“to-and-fro”type
15、of price action was also seen in the aftermath of the Feds March policy meeting.The apparent end to the Feds hiking cycle is something like a double-edged sword for Asian currencies.On the one hand,it could allow more Asian central banks to ease monetary policy and support growth.The RBI has already
16、 started easing and BI and the BSP could soon follow.HSBC Economics no longer expects policy tightening by the BoK and the MAS.If Asian central banks manage to revive growth expectations in 2Q,higher yielding and equity-related currencies,such as the INR,the IDR,the MYR,the KWR and the TWD,could tem
17、porarily benefit at the expense of the SGD and the THB.But on the other hand,to the extent that the Feds dovishness portends a material slowdown in external demand for Asia later,we believe market volatility could return at some point.This could be catalysed perhaps by a return of US inflation and F
18、ed hike expectations,if oil prices stay high and if the Phillips curve kicks in at the late stage of an economic cycle.Alternatively,market expectations about“green shoots”in growth could also get overdone,leading to disappointment later.This is why we still have a broadly higher USD-Asia trajectory
19、 into year-end 2019.The KRW,the MYR and the IDR have historically been more sensitive to deteriorating risk sentiment.We also expect the CFETS RMB index to stay supported in 2Q,amid portfolio inflows on the back of index inclusion(bonds from April)and reweighting(equities from May),and hopes for a t
20、rade deal.In this context,we prefer the RMB to the SGD and the THB for now and will look for opportunities to be long the IDR against the INR and the PHP.CEEMEA We remain bearish on most high-yielding currencies in the CEEMEA space.The ZAR has given up almost all its gains recorded at the start of t
21、he year when the Fed first changed its monetary policy stance.Recent ZAR weakness is the reflection of worsening macro fundamentals and deep structural challenges.Meanwhile,the fiscal loosening and the health of the corporate and banking sector should be a source of concern,in our view.In South Afri
22、ca,growth remains sluggish and so the significant fiscal challenges continue to weigh on the currency.We do not see any catalyst for improvement.The RUB appears to be the exception in this gloomy outlook.There are arguably strong macro reasons for RUB outperformance.The RUB enjoys fiscal and current
23、 account surpluses,and rising oil prices provide another positive impulse.Meanwhile,the inflation outlook has improved as the impact of the VAT hike has been smaller than initially expected.Overall,the appreciation of the RUB since the start of the year could be justified from a macro fundamental st
24、andpoint.Regional views Risk sentiment may be temporarily revived by central banks policy accommodation but market volatility could rise in 2H,potentially affecting the KRW,the MYR and the IDR more than the others We remain cautious on the high-yielding currencies The RUB is outperforming,but the po
25、litical risk premium is under-priced 3 Currencies Emerging Markets 27 March 2019 However,we are not convinced that these developments are new enough to explain the most recent RUB appreciation.Moreover,the risk of further US sanctions has not disappeared.Therefore,we would argue that the RUB is not
26、pricing in enough risk premium and would not chase further spot appreciation by the currency.Our preference in the lower yielders is the PLN.Our bullish view is more strategic as we believe that strong cyclical drivers enhanced by the new fiscal plan will drive the currency higher in the medium term
27、.The HUFs prior strength looks set to reverse as the NBH failed to deliver a meaningful shift to a hawkish policy at its 26 March meeting.Risks around economic imbalances and inappropriately loose policy could return for the HUF.There appear to be few cyclical catalysts for the CZK or the ILS streng
28、th and we expect both to trade at the weaker side of the ranges of the last few years.LatAm External drivers(i.e.,a benign Fed and higher commodity prices)continue to dominate LatAm FX performance in the near term,particularly for commodity currencies like the CLP,the COP and the PEN.However,idiosyn
29、cratic factors have been growing in significance for high-yielding currencies like the BRL,the MXN and the ARS.The BRL has been mostly affected by the prospects of the social security reform bill getting passed,and we may see periods of higher market volatility over the next several months as Congre
30、ss and the government attempt to finalise the details.Progress on this front should support the currency,while impediments to its approval would likely pressure the BRL to weaken.The MXN has been subject to more headline risk stemming from the governments energy policies with respect to Pemex.Electi
31、on concerns have started to create some volatility for the ARSs performance,particularly since inflation prints have been high in January and February.Fortunately,the ARS has been kept in check by rigorous central bank monetary policy guidance,and the Treasurys announcement that it will sell USD9.6b
32、n between April and December 2019.Oil and copper prices remain the key drivers with respect to the COP and the CLP,though their outlooks still depend on the quality of the countries fundamentals.In the case of Colombia,economic activity is still trending higher,though the current account deficit is
33、widening.But we are not worried about external accounts,as we expect FDI to rebound due to higher oil prices,while portfolio flows should be buoyed by the cut to the withholding tax on foreigner bond income from 14%to 5%.We revise our USD-COP forecast to 3,095 from 3,300 for end-2019.In Chile,the do
34、mestic story looks broadly stable.HSBC Economics expects the economy to grow around 3.5%y-o-y in 2019,slightly above potential,while the current account deficit should narrow this year.Pension fund reallocations to more conservative fund types this year could also help the CLP,as this implies sellin
35、g USD to accumulate local assets.Overall,we believe USD-CLP can end the year around its nominal equilibrium level of 650(compared to our previous forecast of 700).Amongst the low yielders,we prefer the PLN to the HUF,the CZK and the ILS Election concerns have started to create some volatility for th
36、e ARS Oil and copper prices remain the key drivers with respect to the COP and the CLP Domestic story looks broadly stable for the CLP Currencies Emerging Markets 27 March 2019 4 Regional views 2 Thank you for your patience 5 EM FX Trade Ideas 14 Asia at a glance 16 RMB:New forecasts to factor in ta
37、riff removal 17 MAS April preview:Time to pause 22 THB:When seasons change 29 RMB:Flows in favour 35 CEEMEA at a glance 41 PLN:The magnetic pole 42 Egypt:Commercial banks counter portfolio flows 47 Ghana:New forecasts:Cedi weakness to push inflation higher 48 LatAm at a glance 50 Chile:New CLP forec
38、ast reflects stable fundamentals 51 Colombia:Better outlook for COP 56 Argentina:Adjustments to monetary and FX policy 60 Real effective exchange rates 62 HSBC Little Mac Valuation Ranges 68 Key global economic and FX assumptions 78 Currency reference table 80 Disclosure appendix 81 Disclaimer 83 Co
39、ntents 5 Currencies Emerging Markets 27 March 2019 Since the beginning of the year,we have argued that there are hallmarks to the early 2016 period when the Fed was dovish and concerns about RMB depreciation had eased(see EM FX Roadmap:Patiencenot always a virtue,26 February 2019).Those conditions b
40、enefited EM FX back then and they have once again been playing a supporting role.Despite the similarities,there are also important differences between now and then,which helps to explain the sluggish spot performance by EM FX lately(Charts 1).The most obvious is that the DXY remains relatively high,
41、unlike in early 2016(Chart 2).Also,the global economy was in the early stage of turning upwards back then,whereas growth concerns are rising.Another difference relates to the Fed.In 2016,it was on a slower path to raise interest rates,whereas we now think the Feds hiking cycle has ended(Chart 3).As
42、we discussed last month,this sharp pivot by the Fed is not expected to undermine the broad USD,as it remains a high-yielding G10 currency(see Currency Outlook:The great pivot continues,15 March 2019).Even for high-yielding EM FX that ought to be getting the most relief from this,the argument is also
43、 nuanced.On one hand,those EM central banks that had to raise interest rates last year are now in a better position to lower rates and support domestic demand,paving the way for portfolio inflows.But this may not necessarily result in sustained local currency appreciation,if resistant FX policy and
44、household or corporate demand for the USD emerge.It is noteworthy that since the Fed first signalled its patience,the relationship between spot FX and carry have actually weakened,implying that other drivers are taking hold(Chart 4).Thank you for your patience The end of the Feds hiking cycle may no
45、t benefit EM FX,since it could portend a larger slowdown in global growth later We favour quality over quantity for EM FX Hope for green shoots,a potential US-China trade deal,and China index inclusions are key themes ahead 1.EM FX gains have slowed lately despite a dovish Fed 2.The USD remains rela
46、tively strong against major currencies Source:Bloomberg,HSBC.Data is as of 25 March 2019.Our last EMFX Roadmap edition was published on 26 February 2019.Note:Total return is spot+interest.Source:Bloomberg,HSBC Paul Mackel Head of Emerging Markets FX Research The Hongkong and Shanghai Banking Corpora
47、tion Limited .hk+852 2996 6565 Ju Wang Senior FX Strategist The Hongkong and Shanghai Banking Corporation Limited .hk+852 2822 4340 Joey Chew Senior Asia FX Strategist The Hongkong and Shanghai Banking Corporation Limited .hk+852 2996 6568 Madan Reddy Asia FX Strategist The Hongkong and Shanghai Ban
48、king Corporation Limited .hk+852 2822 1672 -8%-4%0%4%8%12%RUBMXNCOPCNYTHBIDRPENINRCLPMYRZARBRLSGDPHPTRYHUFTWDCZKPLNKRWARSRONSpot(YTD)Since 26 Feb 2019*Total return(YTD)EM FX performance vs USD951001051109092949698100102104106108Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19USD-EMUSD-G10(RHS)1 Jan=
49、100 Currencies Emerging Markets 27 March 2019 6 Are the drivers changing gear?This is an important reason why we have been a little circumspect about high-yielding EM currencies outperforming altogether.There are still idiosyncratic risks for some(the ARS and the ZAR),while others are not quite unde
50、rvalued or have compressed real yields(INR;Chart 5).Consequently,there has been a greater amount of portfolio flows into hard currency debt over local currency debt(Chart 6).If we were truly in a benign environment,then,presumably,there would be greater willingness for local currency exposures.We ha
