54824773 barcap emerging markets weekly

8/3/2019 54824773 Barcap Emerging Markets Weekly

1/35

EMERGING MARKETS RESEARCH 5 May 20

PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 33

THE EMERGING MARKETS WEEKLY

De-risked, but not distressedThe agreement on Portugals bailout package and a generally healthy set of PMI data

this week should encourage investors to view EM assets positively. The de-risking

this week was probably more technical in nature, namely profit-taking ahead of the

ECB/BoE and payrolls data.

Macro Outlooks

Emerging Asia: An exception that proves the rule 6

The Reserve Bank of India increased the speed of tightening to 50bp as it delivered its

ninth rate hike since March 2010 to counter rising inflation expectations. We expect

central banks in China, India, Korea, Malaysia, Philippines, Thailand and Taiwan to hike

policy rates in the next three months as they maintain a front-loading bias. Similarly, weexpect the Bank of Korea to hike 25bp next week to anchor inflation expectations.

EEMEA: Still room for expansion 8

Although growth has improved, we believe there is still room for further expansion, as

GDP output gaps remain in many countries. We expect Q1 11 GDP figures to improve

and IP to stay high but flatten. Next week, we expect Poland and South Africa to hold

and Serbia to continue hiking.

Latin America: Taking stock of growth and inflation trends 10

Inflation-targeting economies are split in two groups according to GDP gaps. Brazil and

Peru have had positive gaps since 2010, while Mexico, Colombia and Chile will likely

close them in H2 11. Inflation poses a larger risk for Brazil, while Chile, Colombia andPeru have a more comfortable position. The bulk of the Mexican disinflation reflects

base effects and is expected to reverse. Other demand indicators in the region confirm

a gradual convergence towards potential this year.

Strategy Focus

EEMEA FX: Moving mainstream 12

Since the publication of The Emerging Markets Quarterly, 22 March 2011, the beta

backdrop for EM currencies has turned more bullish. To position for this view, we

recommend closing our CZK long and moving into a PLN long, albeit with a tail-risk

hedge. Elsewhere, we tweak our other EEMEA FX trade recommendations.

Singapore: Updating our SGD NEER model 15We have recalibrated our SGD NEER model in light of the release of updated historical

data from the MAS. We expect the SGD NEER to remain above the midpoint of the

index through to year-end and now forecast USD/SGD to fall to 1.19 in 12m.

Chile: Fine-tuning our monetary policy call 18

Marginally more dovish communication from Chiles policymakers leads us to now

expect the central bank to deliver a 25bp hike on 12 May (previously 50bp) and pencil

in a pause at 5.0% (previously a steady normalization to 5.5%).

EM Views on a Page

EM Dashboard

EM FX Views on a Page

EM Credit Portfolio

Data Review & Preview

FX Forecasts and Forwards

Official Interest Rates

What we like

FX Long 9m CNY NDFs

FX Short EUR/Long PLN

Credit Long PDVSA 17 New

Weekly EM Asset Performance

EM-2.4%

-1.7%

-1.7%

-1.4%

-0.7%

-0.3%

-0.9%

-2.8%BRL/USD

ZAR/USD

CLP/USD

TRY/USD

MXN/USD

KRW/USD

INR/USD

RUB/USD

TWD/USD

EM Rates-10 bp

-4 bp-3 bp-2 bp

0 bp2 bp

2

-13 bp

-1 bp

8 bp

Mex TIIE 5yr

Pol 5yr IRSHun 5yr IRSCZK 5yr IRS

SA 2yr IRS

Braz Jan 12CLP 2yr IRSKor 2yr IRS

Indo 5yr Gov

India 2yr IRS

EM Credit

-13 bp

-10 bp-4 bp-3 bp

-3 b-2 -1-1

-25 bpVeni 5yr CDSArg 5yr CDS

Hun 5yr CDSIndo 5yr CDSBraz 5yr CDS

SA 5yr CDSPhils 5yr CDSTurk 5yr CDSRus 5yr CDS

Mex 5yr CDS

EM Equ-5.6%

-3.8%-3.7%-3.6%

-3.3%-1.9%

-1.3%

1

-5.6%

-0.5%

SensexRussia

BolsaFTSE JSEBovespa

JSE AllS&P

KospiShanghai

Turkey

Note: EM Assets Performance charts as of 5 May2011 excespreads, which are as of 4 May 2011.Source: Bloomberg, Markit, Barclays Capital


2/35

Barclays Capital | The Emerging Markets Weekly

5 May 2011 2

EM VIEWS ON A PAGE

What happened

Markets Risk markets took profits, with the S&P down nearly 1.8% on the week. US Treasuries extended their advance, and the yen was thetop-performing currency against the USD this week. In EM FX, most currencies sold off this week, with the exception of the TWDand the PEN. After a large widening over the past few weeks, Perus credit rallied (Peru 50 bonds were up 2.5pts) in response to a

poll conducted by Ipsos-Apoyo, which showed that Humala's lead over Fujimori declined to just 1 pp.Globalmacro

April manufacturing PMI prints for all of the countries in the emerging EMEA region were generally robust, though they weresomewhat more diverse on a country level. Employment conditions seem to be continuing to improve. The results were broadlyconsistent, with the German and euro area PMI still holding up at very strong levels.

Monetarypolicy

The Reserve Bank of India hiked the key policy rates 50bp, against expectations and our call for a 25bp hike. With the current hike, therepo and reverse repo rates stand at 7.25% and 6.25%, respectively. Malaysia initiated its rate hike cycle, raising its overnight policy rate25bp, to 3.0%, in line with our expectations; consensus expectations were for the BNM to remain on hold. We expect it to hike again in

July, by another 25bp. Bangko Sentral ng Pilipinas also hiked its policy rate 25bp, to 4.5%, in line with our and market expectations.Russia also raised its policy rates across the board by 25bp; the refinancing rate is now 8.25%. We expect another 25bp hike in May. InColombia, Banrep announced a 25bp hike of the reference rate, to 3.75%, on Friday, in line with our and the market's expectations. Wecontinue to expect the central bank to raise the overnight rate to 5.0% this year with a 25bp hike per meeting.

What we think

EM assets The agreement on Portugals bailout package and a generally healthy set of PMI data this week should encourage investors to viewEM assets positively. The de-risking this week was probably more technical in nature, namely profit-taking ahead of the ECB/BoEand payrolls data.

What we like

Asset class Trade Rationale

FX ShortEUR/longPLN

The improved positioning outlook in EM and the continued strength of the German economy all argue for switchinginto more mainstream, higher beta EEMEA FX. We recommend a tactical PLN cash long vs. the EUR (target 3.85),hedged with a EUR/PLN put digital option (strike 4.08) based on our concerns about the medium-term risks (fiscalconcerns, C/A and monetary policy credibility).

FX Long CNY9m NDFs

In the context of this weekends Strategic and Economic Dialogue, we look for USD/Asia to continue to drift lower,although we envisage a slower pace of appreciation, given recent performance. We highlight our long CNY 9m NDFahead of the SED meetings 9-10 May in Washington, DC.

Credit LongPDVSA 17N

We think that that PDVSA 17s new are attractive, given the change in their technicals. For the past three months, thecentral bank has been selling the new PDVSA 17 at USD120mn per week. Given that PDVSA previously allocated

USD2.6bn of these bonds, and average sales of approximately USD 30mn per week, there are only seven weeks ofadditional selling. Investors concerned about the current market volatility can hedge market risks buying protection(5y CDS in Venezuela is the ideal candidate).

Figure 1: Oil prices have tumbled this week Figure 2: Peru vs. Brazil 5y CDS: protection against politicallydriven volatility in Peru, election uncertainty remains

90

95

100

105

110

115

120

125

130

1-Jan 31-Jan 2-Mar 1-Apr 1-May

Brent Oil Price

90

100

110

120

130

140

150

160

170

180

1-Jan 31-Jan 2-Mar 1-Apr 1-May

90

95

100

105

110

115

120

125

Peru 5Y CDS Brazil 5Y CDS

Source: Bloomberg Source: Bloomberg


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5 May 2011 3

EMERGING MARKETS OUTLOOK

De-risked but not distressed

The agreement on Portugals bailout package and a generally healthy set of PMI data

this week should encourage investors to view EM assets positively. The de-risking we

have seen this week was probably more technical in nature, namely profit-taking ahead

of the ECB/BoE and payrolls data.

Downplay the de-risking

Notwithstanding the results of the US payrolls data due for release later today, the key

developments this week should result in investors looking positively towards EM assets. The

agreement on Portugals bailout package was reached quickly and in line with political

consensus (in Lisbon). The size of the package (EUR78bn, the equivalent of 45% of the

countrys 2010 GDP), in our European economists view, reflects the determination of the EU

authorities to ring-fence problems in the periphery. On the data front, this week has seen a

generally healthy set of PMI data releases both in developed markets (DM) and in EM. Also,

even though EEMEA PMI saw a slight setback and US non-manufacturing ISM surprised to the

downside, our economists see little to worry about in either of these regions, for now.

The de-risking that we have seen in global equities and, to some degree, in currency space in

EM has been rightly modest and we think, mainly technical in nature (eg, profit-taking ahead

of ECB/BoE and payrolls data). We believe overall EM positioning by real money investors is

helpful (figure 2), and with trading in recent weeks punctuated by public holidays, it seems

unlikely that speculative positions in EM local or external markets are extensive.

We think key beta factors for EM assets are still pointing in a positive direction: US rates and

Treasury yields remain contained; and our FX analysts believe that EUR/USD, in spite of a

recent correction, is likely to head higher. The uptrend on EUR/USD should offer some positive

pull for EM currencies. Figure 3 shows the spot FX performance of the major EM currencies

versus the performance suggested by the EUR/USD move on its own (EUR/USD change *

historical beta of EM FX to EUR/USD). With the exception of RUB and MXN, EM currencies

have not overstretched themselves given where EUR/USD has already moved to. If there is a

common restraint on EM FX, it is probably the temporary break for payers that we currently

see, with lower carry providing a little less appeal for yield-focused currency longs.

Koon Chow

+44 (0) 20 7773 7572

[email protected]

George Christou

+44 (0) 20 7773 1472

[email protected]

Agreement on Portugals bailout

package and a healthy set of

PMI is positive for EM assets

The de-risking this week has

largely been technical in nature

Figure 1: A healthy set of data should keep investor risk

appetite firm

Figure 2: Positioning in EM equities and bonds (local and

external) is not currently a problem

PMI (SA, 50+=Expansion)

32

36

40

44

48

52

56

60

Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10

EMEA EM Asia LatAm US EU Area

PMI (SA, 50+=Expansion)

32

36

40

44

48

52

56

60

Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10

EMEA EM Asia LatAm US EU Area

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

2008 2009 2010 2011

EM bonds EM equities

Mutual fund OW/UW in EM space (ppt)

overweight

underweight

Source: National Statistics Sources, Barclays Capital Source: EPFR Global, Barclays Capital


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5 May 2011 4

Payers can take a break but should be vigilant on commodity prices

Global oil and food prices have recently moderated, which may contribute to some erosion in

the amount of hikes priced in the near term and therefore, the potential for payers to perform.

However, we believe this is unlikely to last long for several reasons. First, our EM inflation

surprise index (updated for the March inflation prints) was still positive; that is, inflation has

still been surprising to the upside (though the index has recently come down off its highs). In

addition, policy surprises are still occurring (India surprised with a larger hike than we and themarket expected this week). This is generally symptomatic of narrowing output gaps in EM as

a whole (certainly when compared with DM) which should continue to support our long FX

and payer recommendations in the medium term. Second, our commodity research

colleagues still strongly emphasize the role of both demand and supply fundamentals in

keeping commodity prices high and skewing the risk outlook, The correlation coefficient

between commodity prices and EM equities has returned to positive territory since March,

suggesting a good scenario for risk taking. To put another way, commodity prices and

equities confirm the same thing - strong global demand. We note, however, that while

demand-driven commodity price increases are less worrying for EM (as it is likely to be

supplying most of the demand), our commodities team does not rule out the return of supply-

side concerns in the coming months, particularly for oil given the potential for a further

deterioration in Yemen and Bahrain. On the food side, supply shocks have already taken theirtoll on grain prices and should continue to pressure food prices higher. The risk is that if

supply-side pressure re-asserts itself, EM assets may see a repeat of Februarys price action.

We believe that a positive message should be conveyed on EM assets and that, despite our

concerns on EM inflation, it should also encompass some relief for EM fixed income in the

near term. The latter should not last, hence our characterisation of a break for payers.

More seriously, we remain sensitive to an inflection point in terms of EM assets reactions to

rising commodity prices. Specifically, we are sensitive to the point where rises are not

viewed as confirmed strong global demand, but a challenge to it. We do not see the market

being at that inflection point in the next few weeks but it joins our list of tail risks that we

highlighted in our recent publications (notably The EM Quarterly, 22 March 2011).

An easing in commodity prices

may, in the very near term, cap

the performance of payer trades

However, our EM inflation

surprise index is still in positive

territory

and supply- and demand-side

pressures should still push

commodity prices higher

Figure 3: EM FX is up ytd but compared with the EUR/USDmoves and historical betas, have not punched their weight

Figure 4: Commodity and risky asset correlations (MSCI EM)are positive

-2%

0%

2%

4%

6%

8%

10%

12%

RUB

MXN

HUF

*

IDR

KRW

SGD

BRL

MYR

TWD

PHP

CNY

CLP

INR

PLN

*

TRY

HKD

THB

ZAR

PEN

Eur contribution** Spot performance

Outperforming what the

beta to EUR would implyUnderperforming

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11

CRB Commod index Avg correl since 2010

break down in relationship during MENA related

commodity supply jitters and rotation out of EM equities

Note: * Versus EUR, ** beta to EUR/USD times by EUR/USD change.Source: Barclays Capital

Source: Bloomberg, Barclays Capital
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5 May 2011 5

Peru - election watch

Peruvian assets remain in the spotlight following the volatility created by the uncertain

political situation (Peru: Electoral riddle, 26 April 2011). A May 4 poll conducted by Ipsos-

Apoyo showed that Humala's lead over Keiko Fujimori declined to just 1pp. The credit, after

a large widening over the past few weeks, rallied in response (Peru 50 bonds were up

2.5pts) and the PEN appreciated 0.28%. Peruvian equity markets have also rallied on the

news (the Peru Lima General Index was up 6.12% on the week). However, with the

candidates technically tied at the moment, and an important portion of the electorate still

undecided, the final result remains uncertain. Nonetheless, the market has reacted

optimistically and is positioning ahead for a potentially positive result on May 8th when the

next Ipsos-Apoyo poll will be release.

What we like

Rates: There is probably some room for tactical receivers (ie, PLN, to 2y, given our view of

no change at the May meeting). However the emphasis is tactical. Our structural/higher

confidence trades are still on the bearish side. Investors may get some attractive

opportunities to add or scale into these trades in the coming days/weeks. In EEMEA our

high confidence payer is Turkey (1y/1y) while elsewhere we highlight a KRW (1y) payer aswell. For Turkey, the widening C/A deficit necessitates a more aggressive tightening of

liquidity conditions with an impact on rates. In Korea, inflation is becoming a little more

problematic even though headline CPI recently surprised to the downside at 4.6% y/y. Core

inflation is rising and we look for the BoK to hike the policy rate by 25bp in May. We would

advise investors to add to pay INR OIS 1y positions, based on our view on policy and the

inflation risks in India.

Credit: We maintain our strategic Overweight in higher yielding credits, particularly

Venezuela and Ukraine. Positioning is not as supportive as previously for Ukraine and

Argentina, but investors have maintained a cautious stance on Venezuela. On a more

granular level, we have recently highlighted the PDVSA 17N as our instrument of choice to

express our constructive view on Venezuela (Venezuela: Manna from heaven, 28 ,April2011). In the low beta space in LatAm, we still like Brazil 10y CDS versus Mexico 10y CDS.

Mexico's has outperformed on the back of higher-than-expected growth. The medium-term

trend in Brazil's creditworthiness indicators, largely thanks to higher potential growth, is

more encouraging than that of Mexico. Hence, we think that Brazil should be trading tighter

than Mexico.

FX: The improved positioning outlook in EM and the continued strength of the German

economy all argue for switching into more mainstream, higher beta EEMEA FX (See EEMEA

Focus piece in this publication). Therefore, we close our CZK long vs EUR and open a tactical

PLN cash long vs the EUR (target 3.85, stop 4.00), given near-term FX appreciation

pressures, hedged with a EUR/PLN put digital option (strike 4.08) based on our concerns

about medium-term risks (eg, fiscal, C/A and monetary policy credibility). In EM Asia,central banks still remain comfortable with the idea that currency appreciation can be used

to lean against inflation. In the context of this weekends Strategic and Economic Dialogue,

we look for USD/Asia to continue to drift lower, although we envisage a slower pace of

appreciation from here given recent performance. We highlight our long CNY 9m NDF

ahead of the SED meetings. We also like our MYR seagull trade; while it has recently moved

in the money, we see potential for USD/MYR to reach 2.94 over the next 2.5 months.

Asset market volatility as

investors follow the opinion polls

closely

Some room for tactical receivers,

but our higher confidence trades

are still on the bearish side

We like paying TRY 1y1y and

KRW 1y. We also recommend

adding to INR OIS 1y payers

We maintain our strategic

Overweight in higher yielding

credits

In low beta credit space we still

like Brazil vs Mexico 10y CDS

Improved beta and positioning

argues for more mainstream and

higher beta EMEA FX longs

We continue to look for

USD/Asia to drift lower in the

context of the SED this weekend
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5 May 2011 6

MACRO OUTLOOK: EMERGING ASIA

An exception that proves the rule

The Reserve Bank of India increased the speed of tightening to 50bp as it delivered itsninth rate hike since March 2010 to counter rising inflation expectations.

We expect central banks in China, India, Korea, Malaysia, Philippines, Thailand and Taiwanto hike policy rates in the next three months as they maintain a front-loading bias.

Similarly, we expect the Bank of Korea to hike 25bp next week to anchor inflationexpectations.

Monetary policy: 50bp hike from RBI is an exception

The Reserve Bank of India (RBI) hiked its key policy rates the repo and reverse repo - by

50bp each earlier this week, to 7.25% and 6.25%, respectively. This was the ninth hike by

the RBI since March 2010, with a cumulative 250bp rise in the repo rate since then.

The RBIs policy stance remains markedly hawkish, with the central bank now almostexclusively focussed on containing inflation, even at the expense of growth. But inflation is

unlikely to be influenced meaningfully by this rate increase alone. We see the possibility that

the RBI may want to stay ultra-cautious and quash the chance of being perceived as falling

behind the curve. We factor in another 50bp of hikes in the next two policy announcements

(16 June and 21 July). Given the current level of systemic pressure on liquidity and interest

rates, policy rate hikes are no longer costless in terms of future growth. But, we think the

RBI is not in a position to give that consideration anything more than a distant second

priority for the time being. The RBI also noted the risks of higher fiscal spending and/or

higher inflation if oil prices are sustained at elevated levels.

In the coming weeks, we believe higher inflation prints could prompt the RBI to hike by

more than what the market is pricing in. Going into the next mid-quarter policy review on

16 June, the trend of large upside surprises in headline inflation, along with rising core

inflation, point towards to further tightening, in our view.

Rahul Bajoria

+65 6308 3511

[email protected]

Prakriti Sofat

+65 6308 3201

[email protected]

RBI increases the size of rate

increases to 50bp

Figure 1: Core prices rising quickly in India Figure 2: Leading to more decisive rate hikes

-4

-2

0

2

4

6

8

10

12

Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11

IN: Headline WPI (% y/y)

Non-food manufacturing inflati on

4%

5%

6%

7%

8%

9%

10%

Apr-08 Apr-09 Apr-10 Apr-11

India: Policy rate (%)

Source: CEIC, Barclays Capital Source: Bloomberg, Barclays Capital

and likely to remain extracautious to avoid being

perceived as behind the curve

We expect another 50bp of hikes

in the next three months


7/35


5 May 2011 7

but the region will continue to follow the front-loading rule

Risks of acceleration in policy tightening elsewhere appear limited for now. In the

Philippines, against a backdrop of higher core prices the central bank delivered its second

rate hike of 25bp in less than two months. The BSP has stated that the rate hike was to

contain second-round effects and reign in inflation expectations. The central bank, which

has raised rates by 50bp in the current hiking cycle, also clearly indicated that its 2011

inflation target of 3-5% remains at risk. The deputy governor also noted that the Philippines

economy can accommodate the 50bp of hikes already delivered, adding that the BSP is not

ruling out future rate hikes. Our base case is for the BSP to stand pat in June to gauge

developments on inflation expectations, and then deliver another 25bp hike in July. Bank

Negara Malaysia (BNM) also hiked the overnight policy rate by 25bp to take the policy rate

to 3.00%. This was the first rate hike by BNM since July 2010, and the fourth 25bp rate hike

since the start of 2010. It also left the door open for further rate action based on its

assessment of growth and inflation prospects. We expect BNM to hike the policy rate by

25bp again at the next MPC in July.

We expect the front-loading of monetary policy tightening to continue across the region,

given the combination of rising inflation and high growth in most Asian economies. With

demand-pull pressures rising across the board, we believe that central banks in China, India,Korea, Malaysia, Thailand and Taiwan will again hike policy rates in Q2.

The week ahead: Bank of Korea, Bank Indonesia MPC

Next week the focus will shift to MPC meetings in Korea and Indonesia. We expect the Bank of

Korea (BoK) to hike its policy rate by 25bp, as it appears clear that core price pressures remain

elevated. We expect the BoK to deliver two further 25bp rate hikes in July and September

taking the policy rate to 3.75%. We expect Bank Indonesia to stand pat at 6.75% next week,

on the back of the downside inflation surprise. However, with core price pressures rising, we

believe that Indonesian rates remain on an uptrend. In China, we forecast export and import

growth to have moderated but to have remained strong, and a small surplus in the trade

balance. We see a broad moderation in April activity, with IP slowing to 14.5% y/y from 14.8%

previously. On the inflation side, we forecast April CPI to have edged lower to 5.2% y/y on

declines in some food prices, but price pressures remain elevated. We estimate new loans in

April of CNY700-750bn and M2 growth at a moderate 16.5%.

BSP and BNM deliver 25bp hike

to take its policy rate to 4.50%

and 3.00% respectively; we

expect both central banks to

hike again in July

Front-loading of rate hikes is

likely to remain the rule within

the region

Figure 3: Front-loading of rate hikes likely to continue Figure 4: Food inflation prices on the decline in China

0%

1%

2%

3%

4%5%

6%

7%

8%

9%

10%

Apr-08 Apr-09 Apr-10 Apr-11China Indonesia India

Korea Taiwan

80

100

120

140

160

180

Sep-09 Dec-09 Mar-10 Jun-10 Oct-10 Ja n-11 Apr-11

Grain Edible Oil MeatChicken Egg Vegetable

06 Sep 09=100

Source: Bloomberg, Barclays Capital Source: CEIC, Barclays Capital

Next week: Bank of Korea

expected to deliver a 25bp hike


8/35


5 May 2011 8

MACRO OUTLOOK: EASTERN EUROPE, MIDDLE EAST, AND AFRICA

Still room for expansion

Although growth has improved, we believe there is still room for further expansion asGDP output gaps remain in many countries.

We expect Q1 11 GDP figures to improve and IP to stay high but flatten out. Russia raised rates and Romania and Czech Republic kept rates unchanged this week.

Next week we expect Poland and South Africa to hold and Serbia to continue hiking.

The EEMEA region output gap has risen from its lows, but it appears to have left room in

most countries for further expansion before overheating sets in. On average, the output gap

rose to +5% at the height in 2008, declined to -3.5% at end-2009, and climbed back to -1%

at end-2010, with most countries remaining in negative territory (Figure 1). The pattern was

somewhat different for capacity utilization, where the trough occurred earlier and recovery

progressed farther, pushing capacity utilization above average for most countries. This

seems to reflect manufacturing leading other sectors in an unbalanced recovery.

Additionally, countries with large output gaps tend to be experiencing lower inflationary

pressures, leading to a nearly linear inverse relationship between output gap and inflation

momentum (Figure 2). The countries with apparent risks of overheating are Turkey, South

Africa, and Israel. In contrast, Romania, Czech, and Russia still have large output gaps. We

are expecting GDP growth in Q1 11 to accelerate because of the buoyancy of exports, IP,

and employment gains (Figures 3 and 4). IP is already high and will likely remain strong, but

probably not accelerate.

In Poland, we expect the NBP to keep its policy rate on hold next week at 4.0%,

notwithstanding accelerating inflation. March inflation surprised on the upside at 4.3% y/y

from 3.6% the previous month. We forecast April inflation (released next week) to decline

slightly, to 4.2% y/y, on lower food inflation. According to statements from MPC members,

the dovish voting block will reject a rate increase this month. One argument is that core

inflation remains low at 1.9% y/y, so inflation is mostly externally driven by commodity

prices. Additionally, some board members are uneasy about the sustainability of growth.

Finally, the NBP and MinFin announced that EU transfers will be sold in the market this year

Daniel Hewitt

+44 (0) 20 3134 3522

[email protected]

Vladimir Pantyushin

+7 495 786 8450

[email protected]

Figure 1: Capacity utilization has recovered more than the

output gap

Figure 2: Expected inflationary pressures are higher in

countries where the output gap has closed

-4

-3

-2

-1

0

1

2

3

4

5

6

07 08 09 10

62

64

66

68

70

72

74

76

Output Gap: (GDP weighted average of 6 countries)

Capacity Utilization (GDP weighted average)

-4

-3

-2

-1

0

1

2

3

4

5

6

07 08 09 10

62

64

66

68

70

72

74

76

Output Gap: (GDP weighted average of 6 countries)

Capacity Utilization (GDP weighted average)

Russia

Poland

Hungary

Turkey

South Africa

Czech

Republic

Israel

Romania

Ukraine

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

-5.0 -4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0

Ouput gap (% GDP), Q4 2010

Inflation Momentum (CPI 2011F - CPI 2010), ppt

Source: National sources, EU, Haver Analytics, Barclays Capital Source: National sources, Haver Analytics, Barclays Capital

Output gap remains for most

countries; however, excess

productive capacity seems to be

disappearing in several countries

Poland NBP expected to keep

policy rate on hold next week


9/35


5 May 2011 9

(up to 12.5bn), instead of being retained by the NBP as FX reserves. This is expected to

lead to currency appreciation that will help hold back imported inflation. Having raised rates

in each of January and April by 25bp, dovish voters appear reluctant to raise rates in

consecutive meetings. We expect a resumption of hikes next month.

We expect South Africa to keep its policy rate on hold. Inflation has turned the corner, rising

to 4.1% y/y. However, with the policy rate at 5.5%, there is no need to rush into hikes. We

believe that continued economic expansion and higher global commodity prices willcontinue to push inflation up gradually and lead to policy hikes early in 2012. Serbia also has

a rate decision next week and we expect a 50bp rate hike to 13.0%. While the NBS has

increased rates a cumulative 450bp over the last nine months, inflation has outpaced this,

rising to 14.0% y/y in March, and we estimate April inflation (released next week) at

16.2% y/y due to electricity price hikes. In data released last week, growth was favourable

with flash Q1 11 GDP up 3% y/y and IP up 7.1% y/y in March.

As expected, in Czech Republic the CNB kept its policy rate at 0.75%. Inflation remains low at

1.7% y/y in March, and we expect further moderation to 1.5% in April (data to be released next

week) and core inflation remains even lower. We foresee some improvement in growth. PMI was

high in April at 59.0 and we expect March IP (released next week) to be up 10% y/y. More

importantly, our GDP growth proxy indicates that GDP accelerated in Q1 11 (data released next

week), we expect growth of 3.0% y/y from 2.6% in Q4 10 and see upside risks to our forecast.Based on the strength of this growth, we predict the CNB will begin hiking in August.

In Romania, the NBR kept its policy rate on hold at 6.25%, as expected. Inflation remained high

at 8.0% y/y in March and we predict next weeks April release will be 8.2% y/y due to

unfavourable base effects. We expect Q1 11 GDP growth (released next week) to move into a

positive range, up 0.3% y/y, marking the beginning of a likely sustained but gradual recovery.

Turkey CPI accelerated to 4.3% y/y in April from 4.0% in March. More significantly, core

inflation expanded to 4.4% y/y, so that inflation has become more broad-based. Even

though PMI dropped in April, at 52.7 it remains in expansionary territory and we expect the

April IP release next week to continue to show economic expansion.

Hungary PMI was very strong in April, at 56. Accordingly we expect IP to continue its brisk

pace rising in March. Given the rapid increase in PMI, IP and exports in Q1, we anticipate GDPgrowth rose to 2.8% y/y in Q1 11 (data released next week) from 1.9% y/y in Q4 10. We

expect inflation (data released next week) to have remained unchanged at 4.5% y/y in April.

South Africa is expected to keep

rates on hold, while Serbia is

likely to continue raising rates on

rising inflation

Czech central bank held policy

rate unchanged at 0.75%,

as expected

Romania central bank also kept

rates unchanged

Turkey inflation rose and growth

remains strong

Figure 3: Indicators imply acceleration of Q1 GDP growth Figure 4: Employment is starting to improve

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11

-70%

-50%

-30%

-10%

10%

30%

50%

EMEA IP growth (PPP weighted), % y/yEMEA GDP growth (PPP weighted), % y/yEMEA exports (PPP weighted), % y/y RHS

Average unemployment (%)

4

6

8

10

12

14

16

18

2005 2006 2007 2008 2009 2010 2011

CE-3 Balkans CIS-3 Baltics

Source: National sources, Haver Analytics, Barclays Capital Source: National sources, Haver Analytics, Barclays Capital

Hungarys growth prospects

appear to be improving


10/35


5 May 2011 10

MACRO OUTLOOK: LATIN AMERICA

Taking stock of growth and inflation trends

Inflation-targeting economies are split in two groups according to GDP gaps. Braziland Peru have had positive gaps since 2010, while Mexico, Colombia and Chile will

likely close them in H2 11.

Inflation poses a larger risk for Brazil, while Chile, Colombia and Peru have a morecomfortable position. The bulk of the Mexican disinflation reflects base effects and is

expected to reverse.

Other demand indicators in the region confirm a gradual convergence towardspotential this year.

Latin America continues to experience solid growth momentum. The region is split between

economies that have closed their GDP gaps in 2010 (Brazil and Peru) and those that should

see this happening sometime between Q2 and Q3 11 (Chile, Mexico and Colombia). Figure 1

shows the GDP gap in these five economies since Q4 08, along with our estimates for Q1 11,

which is due out in the coming weeks for most of the region. While growth should be

moderating towards potential during the course of this year, Q1 releases are unlikely to show

that this convergence is happening swiftly. To be sure, Chilean monthly growth (Imacec)

points to a 6.5% q/q saar rise in 1Q. Hence, we continue to see GDP gaps trending north

across these countries.

Inflation remains a risk in the region. The most extreme case is Brazil, where inflation should

already breach the 6.5% upper bound of the target in April and remain above this threshold

level until January 2012, after peaking at the high 7.7% level in August. Core inflation also

corroborates our view, showing that domestic demand pressures are at work and there is a

material risk that the upper limit of the target could be reached in 2012 if the economic

activity does not slow. Chile, Colombia and Peru are feeling a more moderate build-up in

core inflation and are at still-comfortable levels. Meanwhile, base effects have helped theyear-on-year trend in Mexico, though to be sure, there was some good news in March, with

core and headline surprising on the downside. This combination of factors resulted in

inflation going back to target for the first time since 2006. Unfortunately, we expect this

trend to reverse, pushing headline inflation back up to 4.0% by yearend.

Alejandro Arreaza

+1 212 412 3021

[email protected]

Marcelo Salomon

+1 212 412 5717

[email protected]

The region is split between

economies that have closed

their GDP gaps in 2010 and

those that should see this

happening sometime

between Q2 and Q3 11.

Figure 1: Output gaps Figure 2: Core inflation

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

Q4 08 Q2 09 Q4 09 Q2 10 Q4 10

Brazil Chile ColombiaMexico Peru

Output gap (%)

-2

0

2

4

6

8

10

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

Brazil Chile ColombiaMexico Peru

% y/y

Source:: Haver Statistics, Barclays Capital Source: Haver Statistics, Barclays Capital

Inflation remains a risk, with

Brazil facing most problems


11/35


5 May 2011 11

Other indicators of domestic demand across the region are also showing strength, but with

a consolidation trend taking place. Excess growth of retail sales above industrial production

is softening. This has been the case since the beginning of the year in Brazil and Colombia,

after being in place in Venezuela since October last year. Meanwhile, Chilean domestic

demand continues to fire ahead of IP, and the difference is well above that observed in the

pre-crisis periods. Mexico also sticks out, as the momentum of domestic demand remains

below that of industrial activity.

Import growth continues to soften gradually, but remains at strong levels across the region.

The overall pattern is much more uniform than for other activity indicators, and with the

exception of Colombia and Venezuela, which continue to show an upward trend of import

growth, the data corroborate our view that growth moderation is taking place. On this front,

the only exception will probably be Venezuela, the only economy that still contracted last

year and should benefit this year from rising oil-driven public expenditures.

This backdrop helps us sort the main sources of pressure building up behind the monetary

policy normalization process in the region. The strongest inflation and growth pressures felt

in Brazil are leading to a prolonged period of tighter monetary conditions, despite the clear

pro-growth bias endorsed by the governments. Meanwhile, the output gap and observed

inflation outlook in Mexico are giving a dovish Banxico the ammunition to remain on hold,and even though inflation should have seen its trough in March, we believe policy

normalization is due to begin next year. Finally, we see the Chilean authorities probably

ready to start softening its tightening cycle (seeChile: Fine-tuning our monetary policy call,

May 4, 2011).

The pace at which retail

sales surpasses IP growth

appears to be moderating

while import growth is

strong and gradually

softening at the margin

Figure 3: Excess retail sales growth vs. IP Figure 4: Import growth consolidation

-10

-5

0

5

10

15

20

25

Jan-07 Oct-07 Jul-08 Apr-09 Jan-10 Oct-10

BR CL CO MX

% y/y 3mma

-60

-40

-20

0

20

40

60

80

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

AR BZ CL CO MX PE

% y/y 3mma

Source: Haver Analytics, Barclays Capital Source: Haver Analytics, Barclays Capital


12/35


5 May 2011 12

STRATEGY FOCUS: EEMEA FX

Moving mainstream

This is an extract of a report published on 4 May 2011.

Since the publication of The Emerging Markets Quarterly, 22 March 2011, the betabackdrop for EM currencies has turned more bullish. To position accordingly for this

view, we recommend closing our CZK-long and moving into a PLN-long, albeit with a

tail-risk hedge. Elsewhere, we tweak our other EEMEA FX trade recommendations.

Helpful beta factors and a healthy pull for EM European economies (from robust German

growth) argue for being long on aggregate EEMEA currencies. At the time we published The

Emerging Markets Quarterly, 22 March 2011, we were constructive EM currencies but did

not foresee major gains from being long EEMEA FX. Most of our EEMEA FX

recommendations were longs focused on idiosyncratic factors and with few pure longs in

the most liquid currencies. Since publication, the beta backdrop has turned more bullish

with the helpful adjustment (weaker) in the USD against major currencies. This has, to

varying degrees, washed into EM currencies against their base currencies. We still see roomfor further dollar weakness and, with generally constructive positioning technicals and the

return of EM fund inflows, we can see more room for gains in EEMEA FX longs. To position

accordingly for this view, we recommend closing our CZK-long and moving into a PLN-long,

albeit with a tail risk hedge. Elsewhere, we tweak our other EEMEA FX trade

recommendations as set out in Figure 1. Below we outline the key themes that have been

(and are likely to continue to be) more helpful for EEMEA currencies.

Figure 1: EEMEA FX trade ideas

Recommendations published in EM

Quarterly, 22 March 2011

Latest

Czech Republic Short EUR/long CZK cash CloseHungary Short TRY/long HUF cash Hold

Israel Short EUR/long ILS. Buy USD/ILSbutterfly

Close butterfly. Hold short EUR/ longILS

Kazakhstan Short USD/KZT 6m NDF Hold

Poland None Short EUR/long PLN cash. BuyEUR/PLN put digital as hedge (4.08strike, 1m, 12% cost)

Romania Long 6m T-bill, FX unhedged Hold

Serbia Short EUR/long RSD NDF (6m) Hold

Turkey Short TRY/HUF. Buy USD call/TRY putsprd (1.65, 1.75, 3m)

Hold short TRY / HUF. Adjust putsprd strikes (1.60, 1.70, 3m)

Source: Barclays Capital

CE currency trades in EEMEA Moving into the main stream

In light of the above, as well as the shifts that have occurred in CEE idiosyncratic factors

since publication ofThe Emerging Markets Quarterly, we have decided to tweak our CEE FX

trades to better reflect the current themes at play. We switch from lower-beta peripheral

CEE currencies into more mainstream, higher-beta CEE currencies. More specifically, we

take profits on our long CZK versus EUR trade at 24.18 (we entered at 24.49). While we

remain bullish the CZK in the medium run, we see limited scope for any significant

appreciation over the coming months given the potential for the CNB to disappoint the

Koon Chow+44 (0) 20 7773 7572

[email protected]

George Christou

+44 (0) 20 7773 1472

[email protected]

Tweaking our EEMEA FX

recommendations and adding a

mainstream long in the form of

the zloty

We close our long CZK vs EUR

trade due to downside risks in

the near term
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13/35


5 May 2011 13

markets with regard to rate hikes (we look for the first hike in August of 25bp). In addition,

and against this backdrop, the currencys negative carry and lower beta will further deter

investors to scale up CZK exposure from these levels, we think.

In place of our CZK trade we enter into a tactical long PLN versus EUR cash position (target

3.85, stop 4.00). Several factors should offer the PLN some support in the coming weeks, we

think. First, there is plenty of catch-up potential when comparing PLN YTD performance

versus other CEE currencies. In addition, we expect privatisation/IPO flows to pick up in Q2

relative to Q1. One transaction that stands out is the sale of Polkomtel, which could be worth

up to $6.7bn and is expected to close before June (final bids are due on 6 May). This could

offer PLN significant support in the near term given that four out of the five bidders are foreign

private equity funds or telecoms companies that would need to exchange FX into PLN

(Reuters reports). Furthermore, the announcement that the MinFin will start to regularly

exchange EU related proceeds (in the range of EUR12-13bn) into local currency on the market

should also increase PLN appreciation pressures, we think. That said, we continue to remain

concerned about Polands medium-term challenges (fiscal risks, overall BoP health and the

ongoing credibility issues of the MPC in the face of increasing inflation). These challenges,

combined with the currencys high beta, will likely lead to a significant underperformance

relative to other EEMEA currencies in a tail-risk event or in an environment of general riskaversion. We therefore prefer to hedge our long PLN cash trade with a call/PLN put digital

option (strike 4.08, cost of 12%). As a worked example, if we assume a notional of EUR20mn

on the cash side and EUR1mn on the option notional, we earn a net profit of c.EUR0.4mn in a

scenario in which our 3.85 target is hit (spot profit of 0.5mn minus option cost of 0.12mn).

Assuming our more bearish scenario materialises, our ITM digital option earns a net profit of

c.EUR0.6mn (assuming a stop of 4.00 on the cash side). Our maximum loss occurs at our cash

stop of 4.00 (c.EUR0.4mn).

Elsewhere in CEE FX space we remain happy to hold our existing trades documented in The

Emerging Markets Quarterly, 22 March 2011. Hungarys solid BoP numbers combined should

offer further support in the near term for the HUF, we think. We continue to prefer to express

our bullishness through an RV trade versus the TRY (see below). In addition, we still like ourtwo carry trades - long RSD versus EUR 6M NDF trade (currently 10% NDF implied yield) and

our long RON carry trade (via 6M T-bills FX unhedged, currently 6%). In Serbias case the likely

continuation of the central banks aggressive rate hiking cycle in the context of rising inflation

should be supportive of further appreciation, while for Romania, a shrinking current account

deficit and the reserves buffer of a precautionary SBA should all help to exert further gradual

appreciation pressure. We look for EUR/RON to reach 4.00 by year-end. Intervention risks due

to competitiveness concerns remain a key risk for both our carry trades, however.

Oil currency trades in EEMEA the haves and have nots

The Barclays Capital view is that Brent prices will average $112 this year, which means that,

with current prices at $122, the remainder of 2011 is likely to see a softening in prices.

However, our commodity research colleagues warn of near-term upside risks to prices

related to possible supply disruptions and investment inflows to energy instruments. From

an FX perspective the most obvious implications are for the floating/managed currencies of

oil producers Russia and Kazakhstan. Although RUB has been the better performer YTD and

CBR is significantly more acquiescent towards currency flexibility than the National Bank of

Kazakhstan, we feel more comfortable sticking with a KZT long rather than getting into RUB

longs at this late stage. Speculative positioning in RUB is a challenge and structural private

capital outflows from Russia remain sizeable and could unseat the rouble if oil prices were

to ease back (not our baseline scenario). The KZT, by contrast, has marginally fewer

Catch-up potential,

IPO/privatization flows and on-

market EU transfer conversions

are positive PLN in the near term

We enter into 1m tactical longPLN vs EUR cash position hedged

with a digital option given

Polands challenges

We remain happy with our

relative value bullish HUF trade

vs TRY

We also continue to hold our

RON and RSD carry trades

Elevated spec positioning and

structural private outflows make

us sceptical about RUB as an oil

beta trade
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14/35


5 May 2011 14

positioning risks and the overall BoP is in stronger shape. The relatively cheap level of the

KZT versus RUB (a key trading partner currency for Kazakhstan) supports our view of a 3-

5% annualised appreciation rate of KZT appreciation against the dollar and importantly,

with low downside risks if oil prices correct.

Turkey remains the most vulnerable to further oil price increases given the high level already

reached on the current account balance (see Figure 2). On a 12-month rolling basis the

deficit is nearly the equivalent of 7.9% of GDP and the deterioration is in contrast to the restof EEMEA where the pull of demand for exports has offset the higher oil import bill. The size

of Turkeys C/A and the reliance of financing on portfolio flows, offshore borrowing and

asset repatriation flows make us nervous on TRY (see Figure 3). Granted, the positive beta

backdrop will likely continue to offer up capital inflows to finance this C/A deficit, hence,

our early forecasts of a sharp fall (by mid-year) in the lira seem inappropriate. But the

negative tail risks on the lira remain meaningful and as a result, we wish to keep our hedged

bearish trades, albeit with some slight modifications. We stick with short TRY versus HUF

given the contrasting BoP health of Turkey versus Hungary. We modify our USD call/TRY

put to less ambitious strikes (1.60 and 1.70 for 3m against our previous strikes of 1.65 and

1.75. The new structure has a max net payout-to-cost ratio of 5:1).

What if we are wrong about these beta factors?

We are turning more constructive on EEMEA currencies; however, peripheral European risks

are likely to continue to linger with investors periodically nervous about the possibility of de-

leveraging flows from the Emerging Europe banking system. In a scenario of a flare up in

contagion something more akin to the experience in May 2010 than this year our CE

currency cash longs (PLN, RSD and, to a lesser degree, RON) are likely to come under

depreciation pressure, especially the more liquid ones, given the ease of portfolio outflows

there. However, while our bullish recommendations would come under pressure and maybe

stopped out, some of our hedges could do very well (TRY/HUF, given the challenging C/A

financing metrics in Turkey and our PLN option digital hedge). Our short EUR/long ILS

recommendation would probably do even better in this scenario. Our baseline view is that

the convergence of a structural C/A surplus and an aggressive hiking cycle in Israel shouldbe pushing ILS higher anyway against the EUR. Although the ILS has done well against the

USD, it is still at competitive/cheap levels versus the EUR. A serious flare-up in peripheral

European risks would probably hit EUR a lot more than ILS.

Turkeys C/A deficit and reliance

on portfolio flows, offshore

borrowing and asset repatriation

make us nervous on the lira

We stick with our long KZT

trade recommendation

We keep our short TRY vs HUF

trade and adjust the strikes on

our TRY put spread

Peripheral Europe risks have not

gone away

While our liquid cash longs may

suffer in a tail-risk event our

TRY/HUF and PLN digital option

hedges are likely to perform

Figure 2: Strong external demand trumps oil so far in termsof the C/A balances

Figure 3: but Turkeys deficit is still large and the sourceof financing in the BoP is risky

-10

-5

0

5

10

2007 2008 2009 2010

CE Russia Turkey

Israel S.Africa

% GDP

-2

0

2

4

6

8

10

Turkey

SA

Russia

Israe

l

Czec

hR

.

Po

lan

d

Hungary

Net FDI Net portfolio Net other Assets & liab.

% GDP

Source: National Statistics Offices, Barclays Capital Source: IMF, Haver Analytics


15/35


5 May 2011 15

STRATEGY FOCUS: SINGAPORE

Updating our SGD NEER model

This is an excerpt from Singapore: Updating our SGD NEER model, 5 May 2011.

We have recalibrated our SGD NEER model in light of the release of updated historicaldata from the MAS. We expect the SGD NEER to remain above the midpoint of the index

through to year-end and now forecast USD/SGD to fall to 1.19 in 12m.

Our in-house SGD NEER model has been updated following the release of the SGD NEER

weekly data up to 8 April 2011 by the Monetary Authority of Singapore (MAS). The

modified weights inferred econometrically from the official data are shown in Figure 1.

Based on this analysis, we estimate that the SGD NEER was re-centred by 150bp, consistent

with the MASs message that: The exchange rate policy band will be re-centred below the

prevailing level of the SGD NEER. Our analysis suggests that the slope was left unchanged

at 3.5%, maintaining the steepening from the 2.5% applied in October 2010. We also

estimate that the policy band was left unchanged at +/-2.0%. After the update, we have

reduced the average deviation between our NEER model and the MASs data to close to 2bpfor the past six months.

Refreshing our econometric analysis entails changes to some of the weights in our SGD NEER

model. We estimate that the USD weight has fallen by 0.9pp to 27.9%. The largest change was

the TWD weighting, which we estimate rose by 1.6pp to 4.5%. Other notable changes

included the INR (-0.7pp to 0.4%), MYR (-0.4pp to 13.4%) and KRW (+0.2pp to 3.5%).

Figure 1: Updated SGD NEER model weightings largely unchanged

Versus SGD Broad 13-currency index

New weights Old Net change (pp)

USD 27.9% 28.8% -0.9MYR 13.4% 13.8% -0.4

EUR 11.0% 11.2% -0.2

CNY 9.7% 9.4% 0.3

JPY 9.4% 9.3%

THB 5.6% 5.5% 0.1

IDR 5.6% 5.8% -0.2

KRW 3.5% 3.3% 0.2

AUD 3.8% 3.6% 0.2

TWD 4.5% 2.9% 1.6

GBP 3.3% 3.3% 0.0

INR 0.4% 1.0% -0.7

PHP 2.0% 2.0% 0.0

Note: 1) we use principal-components analysis to determine t he weights for each currency in the SGD NEER basket.Source: Bloomberg, Barclays Capital

Wai Ho Leong

+65 6308 3292

[email protected]

Rahul Bajoria

+65 6308 3511

[email protected]

Nick Verdi

+65 6308 3093

[email protected]


16/35


5 May 2011 16

SGD to remain above the midpoint of the band

Between now and the October 2011 MAS policy meeting, we expect upward pressure on

the SGD to continue with the NEER remaining above its midpoint. This is consistent with

our view of generalised USD weakness through the remainder of the year. Our USD view

is predicated on our expectation of no policy tightening in the US before Q3 12, in

contrast to rate hikes elsewhere. In the run-up to the April MPC, we think the MAS

intervened frequently in the market as the SGD NEER skirted the upper part of its band.This is supported by data on FX reserves and the forward book, with intervention heaviest

in March and April, when FX reserves rose by USD16bn and USD22.7bn, respectively, to

an estimated USD356.8bn (see Figures 3 and 4).

We expect the SGD NEER to drift 75-100bp above the midpoint over the next three months.

In 6m, we expect the NEER to trade 100-125bp above the midpoint as markets price in

further currency appreciation. At the October monetary policy meeting, we expect MAS to

narrow the band back to +/1.5% as it becomes increasingly confident in the pace of

currency appreciation without requiring the insurance of a wider band. Based on our

forecasts for other currencies and assuming that the 3.5% slope in the SGD NEER remains

in place, we look for USD/SGD to drift lower to 1.19/USD in 12m, within an estimated range

of 1.177-1.213.

Figure 2: USD/SGD exchange rate forecasts

Spot 1m 3m 6m 12m

SGD NEER Mid 116.43 116.77 117.46 118.49 120.51

Implied forecast mid 1.23 1.23 1.21 1.19

Implied forecast bottom 1.26 1.25 1.23 1.21

Implied forecast Top 1.21 1.20 1.20 1.17

Forecast 1.225 1.215 1.200 1.190

Source: Barclays Capital

We expect upward pressure on

the SGD NEER to continue

Figure 3: SGD NEER likely to trade in top half of the band Figure 4: Strong reserve accumulation in the near term

102

104

106

108

110

112

114

116

118

120

Apr-07 Apr-08 Apr-09 Apr-10 Apr-11

MAS official NEER Updated Barclays Broad index

100

150

200

250

300

350

Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11

98

100

102

104

106108

110

112

114

116

118

Net fwd positionForeign reservesMonthly Average SGD NEER (Index, RHS)

USDbn

Source: MAS, Bloomberg, Barclays Capital Source: MAS, CEIC, Barclays Capital

USD/SGD to maintain its

downward trajectory; we now

expect the SGD to appreciate to

1.19/USD in 12m


17/35


5 May 2011 17

A relatively measured response from MAS in April MPC

For now, we see the balance of risks as still tilted towards inflation, albeit slightly. The recent

MAS statement was interesting for two reasons. First, the re-centring suggests that the

MASs assessment of inflation risks is more immediate than we had expected MAS noted

in its policy statement that: "factor markets are tight, domestic cost and price pressures will

remain firm". We estimate the re-centring to be about 1.5%. While MAS has acknowledged

that the increase in inflation in Q1 was largely due to a sharp rise in COE premiums, this

distortion will fade as base effects dissipate. It expects wage pressures to build up amid a

tight labour market, and the pass-through into services costs and core could intensify in the

months ahead. For the whole year, the MAS continues to expect inflation to be in the upper

half of its 3-4% forecast range and core inflation to be 2-3%.

Second, the re-centring to a level below the prevailing level of the midpoint was an

unprecedented step. We believe this reflects a greater sense of caution over the tail risks to

growth and a desire to avoid excessive strength in theSGD. Even as the government hasexpressed greater comfort with the present path of growth, we believe this reflects the

robust expansion in Q1. A factor of comfort was the stronger performance of Q1 GDP

which grew 23.5% at an annualised q/q pace (up from 3.9% in Q4 last year). We think this

likely contributed to the central bank's expectation that momentum will remain strong in

the coming quarters, even as headline readings moderate. We see a possible contraction in

output in Q2, on a likely downside surprise in pharmaceutical output. The abnormally high

base in the pharmaceutical IP index over Q2 10 is likely to depress headline IP this year.

A measured response from

MAS in April policy should help

to anchor inflation expectations

Figure 5: Pass-through into services costs accelerating Figure 6: Core price pressures rising

-2%

0%

2%

4%

6%

8%

Mar-08 Mar-09 Mar-10 Mar-11

Domestic oriented services Transport Food

-2

0

2

4

6

8


-4

-2

0

2

4

6

8

10

Core inflation (% y/yCore inflation (% 3m/3m, saar, RHS)

-2

0

2

4

6

8


-4

-2

0

2

4

6

8

10

Core inflation (% y/yCore inflation (% 3m/3m, saar, RHS)

Source: CEIC, Barclays Capital Source: CEIC, Barclays Capital

A re-centring below the

prevailing level reflects caution

over tail risks to growth


18/35


5 May 2011 18

STRATEGY FOCUS: CHILE

Fine-tuning our monetary policy call

This is an excerpt from Chile: Fine-tuning our monetary policy call, 4 May 2011.

Marginally more dovish communication from Chiles policymakers leads us to nowexpect the central bank to deliver a 25bp hike on 12 May (previously 50bp) and pencil in

a pause at 5.0% (previously a steady normalization to 5.5%).

In the past few days, communication from fiscal and monetary authorities has been turning

marginally away from the free-floating, inflation-focused tone prevailing since early February.

Last week, Minister of Finance Felipe Larrain said the government was not going to sit idly by

during FX appreciation. This morning, the Central Bank Chief Economist Luis Herrera said lower

global rates may push down neutral Latin rates. This followed minutes from the 12 April

monetary policy meeting, published on 28 April, that carried a relatively more dovish tone, in

our view.

We think that with the Chilean peso having appreciated significantly and after 125bp of

progress in the normalization process, the sense of urgency inspiring monetary policy

decisions since February has seemingly begun to fade. Concerns about FX strength, in turn,

appear to have ticked up. In the most recent minutes, one board member said it was evident

that, as the normalization proceeded, the remaining required adjustments of the policy rate

would be lower. The minutes also concluded with the notion that the neutral policy rate

(estimated to be 5.1-6.5% for Chile) reflected a condition of internal equilibrium but could

imply an external disequilibrium when international rates were not near their neutral levels.

This notion alludes to the paradigm outlined last year (Chile: All Doves Day, 2 November

2010), which was eventually followed by the announcement of an FX-intervention package

and a pause in the tightening cycle in January. Although we suspect the central bank will

take care to avoid the sort of market punishment endured after its intervention-pause

combo, its most recent language suggests a less aggressive normalization pace in the nearterm and possibly a terminal rate on the lower end of the range considered neutral.

Accordingly, we now expect the central bank to deliver a 25bp hike on 12 May instead of

the 50bp we expected previously. Moreover, we now pencil in a pause at 5.0% instead of

the steady normalization to 5.5% we expected before. Although we think the central bank

will eventually bring the policy rate more clearly within its neutral range (we pencil in fine-

tuning 25bp hikes in September and December), this updated near-term outlook suggests

some tactical value in the very front end of the curve. In contrast, it caps the upside

potential of our recommendation to sell 5y breakeven inflation, which we had based on the

decisiveness of the central bank to control inflation (Chile: Dont stop believin, 8 March

2011); we recommend investors reduce or take profits on the position.

Would less urgency be justified?

Following the methodology outlined in Mexico: Taylor (does not) rule, 28 April 2011, we

assess the current monetary policy stance against the prescriptions of a Taylor rule. As a

reminder, in that report we estimated a Taylor rule equation using actual inflation in one

specification and expected inflation in another. Here we consider a third specification

incorporating FX changes. Figure 1 shows the results of the estimated parameters.

Jimena Zuniga+1 212 412 5361

[email protected]

Recent communication points to

a more dovish stance

showing less sense of urgency

on the inflation front and higher

FX concerns

This resembles the situation in

late 2010

leading us to expect a less

aggressive monetary policy path

We assess Chiles stance against

a Taylor rule
https://live.barcap.com/go/publications/content?contentPubID=FC1708393https://live.barcap.com/go/publications/content?contentPubID=FC1649878https://live.barcap.com/go/publications/content?contentPubID=FC1689720https://live.barcap.com/go/publications/content?contentPubID=FC1706176https://live.barcap.com/go/publications/content?contentPubID=FC1706176https://live.barcap.com/go/publications/content?contentPubID=FC1689720https://live.barcap.com/go/publications/content?contentPubID=FC1649878https://live.barcap.com/go/publications/content?contentPubID=FC1708393


19/35


5 May 2011 19

The main messages of these results are the following:

1. A Taylor rule provides a pretty good fit for the policy rate in Chile. As recommended bythe Taylor rule, the central bank is responsive to both the output gap and deviations of

inflation from the target.

2. The central bank is forward looking, responding more to deviations in inflationexpectations from the target than to deviations of actual inflation from the target.

3. The central bank is about as responsive to the output gap and to deviations in inflationexpectations from the target as a Taylor rule recommends.

4. The central bank is somewhat responsive to FX changes, though adding FX changes tothe expectations-based specification does not increase the explanatory power of the

regressor group significantly.

5. The implied value for the neutral policy rate in Chile seems too low, highlighting thateven if the central bank has been about as responsive to the Taylor rule inputs as the

rule would indicate, it has not necessarily been as hawkish.

Figure 1: Taylor rule estimates for Chile

Specification 1: Using actual

inflation

Specification 2: Using inflation

expected in 12 mth

Specification 3: Using expected

inflation and FX

Variables Coef. p value Coef. p value Coef. p value

Real rate + target 3.49 0.000 3.42 0.000 3.63 0.000

Output gap 0.27 0.000 0.40 0.000 0.47 0.000

Inflation gap 0.55 0.000 1.54 0.000 1.38 0.000

FX ann. change (lagged) --- --- --- --- 0.05 0.000

Adjusted R2 0.81 0.69 0.76

Observations 99 100 100

Note: Sample period: January 2003-present. Source: Barclays Capital

Figure 2: Policy rate versus Taylor implied(using the parameters estimated for Chile)

Figure 3: Policy rate versus Taylor implied(using Taylors recommended parameters)

4.5

3.6

5.04.6

-2

0

2

4

6

8

10

Jan-03 Jul-04 Jan-06 Jul-07 Jan-09 Jul-10Policy rate Taylor-implied*

Taylor-impl ied** Taylor -implied***

%

4.5

5.25.5

0

2

4

6

8

10

12

Jan-03 Jul-04 Jan-06 Jul-07 Jan-09 Jul-10

Pol icy rat e Taylor-i mpl ied* Tayl or-impli ed**

%

Note: *using actual inflation; **using expected inflation; ***using expectedinflation and FX changes. Source: Barclays Capital

Note: We assume a conservative neutral real rate of 2%; *using actual inflation;**using expected inflation. Source: Barclays Capital


20/35


5 May 2011 20

Figure 4: BCCh could justify a relatively low terminal rate Figure 5: Taylor inputs

4.50

5.2

5.2

-1

0

1

2

3

4

5

6

Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11

Policy rate Taylor-implied**

Taylor-implied***

%

Based on BarCap

forecasts

-5%

-3%

-1%

1%

3%

5%

Jan-03 Jul-04 Jan-06 Jul-07 Jan-09 Jul-10

-5

-3

-1

13

5

7

9

11

Out put ga p Infla ti on, R HS

%

BarCap

forecasts

Note: Based on Chiles estimated parameters; **using expected inflation;***using expected inflation and FX changes. Source: Barclays Capital

Source: Haver Analytics, Barclays Capital

The results also indicate that, at 4.5%, the policy rate is broadly in line with what a Taylor

rule would indicate, at least when relying on the parameters estimated for the Chilean

economy (Figure 2), if not the ones recommended by Taylor (Figure 3). In particular, the

current monetary policy stance seems a little dovish relative to the prescriptions of an

expectations-based Taylor rule, yet adequate relative to the prescriptions of an FX-

augmented rule. By contrast, just after the central banks January pause, the policy stance

seemed to unambiguously lag what a Taylor rule recommended. This supports our view

that the central banks sense of urgency vis vis the normalization of the policy stance has

probably diminished.

Interestingly, incorporating our real GDP growth forecast for this year (6.4%), our neutral

view on the USD/CLP at 460, and assuming no further deterioration in inflation

expectations, the Taylor-implied policy rate would not increase tremendously in the coming

months (Figure 4.) This suggests that, even though we view our revised monetary policypath as potentially risky for the inflation outlook, such a path would be defensible.

Measured against a Taylor rule,

the policy stance seems

adequate to a little dovish

and suggests our revised

monetary policy path, while

potentially risky, could

be defensible


21/35


5 May 2011 21

EM DASHBOARD

George Christou +44 (0)20 777 31472 [email protected]

Alanna Gregory 212 412 5938 [email protected]

Description Entry date Entry Current Target Stop

P&L to target/

P&L to stop Analyst

Credit (13)

Buy Philippines 5 Yr CDS 28-Apr-11 128bp 128bp 140bp 123bp 2.4 Hegde, Save

Long PDVSA 17 New 28-Apr-11 72 71 78 67 1.75 Arreaza, Cruz, Grisanti, Guarino

Sell Brazil Buy Mexico 10yr CDS 04-Apr-11 15bp 3.8bp -5bp 30bp 0.34 Guarino, Zuniga

Hungary 2s7s CDS steepener (DV01-neutral) 28-Mar-11 68bp 91bp 100bp 75bp 0.56 Kolbe

Buy Poland 5y CDS vs CEEMEA SovX index 22-Mar-11 60bp 42bp 30bp 70bp 0.43 Kolbe, Hewitt

Buy Tunisia 5y CDS/Sell Morocco 5y CDS 22-Mar-11 5bp -4bp 50bp -30bp 2.08 Kolbe, Moubayed

Long Boden 15 22-Mar-11 700bp 673.9bp 600bp 800bp 0.59 Guarino

Long Boden 15 Buy 5yr CDS 22-Mar-11 110bp 88.8bp 30bp 120bp 1.88 Guarino

Long Ghana 17s 22-Mar-11 427bp 365bp 300bp 375bp 6.5 Kolbe, Markus

Buy Russia 5y CDS 16-Mar-11 138bp 128bp 170bp 110bp 2.33 Kolbe

Buy Peru 5yr CDS Sell Brazil 5yr CDS 04-Mar-11 -5bp 37.9bp 100bp 26bp 0.33 Melzi, Guarino

Long Ukraine 13s 07-Dec-10 525bp 336bp 300bp 400bp 0.56 Kolbe

Long Argentina EUR Warrant 06-Jun-10 6.05 14 16 9 0.23 Guarino, Mondino

FX (17)

Buy 1M EUR call/PLN put digital (strike 4.08) 04-May-11 3.95 - 4.08 - 8.6 Chow

Buy 3M USD call/TRY put spread (1.60, 1.70) 04-May-11 1.55 1.54 1.75 - 0.14 Chow

Sell EUR/PLN 04-May-11 3.95 3.95 3.85 4 1.67 Chow

Buy 1m one-touch USD/INR option with a trigger at 28-Apr-11 9% 6.4% 100% 0% 14.63 Verdi

Buy 2m USD/IDR calls with an 8950/USD strike 28-Apr-11 0.42% 0.33% 4% 0% 11.12 Verdi

Buy 1x1.5 USD/TWD put spread (strikes 28.85 and 28 26-Apr-11 0.14% 0.41% 1.1% 0% 1.68 Verdi

Sell 9m CNY NDF 26-Apr-11 6.37% 6.35% 6.25% 6.5% 0.71 Verdi

Buy USD/MYR put spread (strikes 3.0237 (ATM) and 2 11-Apr-11 0.22% 1.27% 2.4% 0% 0.89 Verdi

Sell USD/BRL 07-Apr-11 1.6 1.61 1.5 1.67 1.83 Loureiro, Melzi, Salomon

Buy SGD vs EUR(60%)-USD(40%) basket 22-Mar-11 100 101.4 101.8 98.5 0.14 Verdi

Long RON via 6M Tbills FX unhedged 22-Mar-11 4.16 4.11 4 4.16 2.2 Chow, Chwiejczak

Sell EUR/ILS 22-Mar-11 5.01 5 4.8 5.1 2 Chow

Sell EUR/RSD 6M NDF 22-Mar-11 103 99 95 105 0.67 Chow

sell TRY/HUF 22-Mar-11 121 117 107 127 1 ChowSell USD/KZT 6M NDF 22-Mar-11 146 145.6 141 147 3.29 Chow

Long USD/PEN 18-Mar-11 2.78 2.82 2.85 2.78 0.75 Melzi,Grisanti

Long Ghana 3y bond (FX unhedged) 07-Dec-10 13% 12.4% 9% 16% 1.15 Markus

Rates (9)

Indonesia 5x20 flattener 14-Apr-11 235bp 191bp 180bp 265bp 0.15 Rachapudi

CZK 2s10s IRS dv01 flattener 22-Mar-11 105bp 110bp 70bp 120bp 4 Chwiejczak

Pay 1y KRW IRS 22-Mar-11 3.68% 3.79% 3.85% 3.58% 0.29 Rachapudi

Pay TRY CCS 1y1y FWD 22-Mar-11 8.34% 8.4% 9% 8% 1.5 Chwiejczak

Receive ZAR 1y1y fwd 22-Mar-11 7.6% 7.4% 7% 8% 0.67 Chwiejczak

Pay 1y INR OIS 20-Mar-11 7.4% 7.81% 8% 7.6% 0.9 Rachapudi

Long Jul20 local TES 18-Mar-11 8.15% 8.19% 7.75% 8.5% 1.42 Melzi

Receive Jan15 Pre-Di 18-Mar-11 12.79% 12.62% 12.2% 13.35% 0.58 Melzi

Pay 5y PLN IRS 07-Dec-10 5.4% 5.61% 5.85% 5.4% 1.14 Chwiejczak

Closed Trades (9)Buy USD put/ILS call Bfly (3.70,3.60,3.55 strikes) 22-Mar-11 3.53 3.4 - - 05-May-11 Chow

Buy USD/TRY put spread (1.60, 1.70 strikes) 21-Apr-11 1.52 1.54 - - 05-May-11 Chow

Long PDVSA 14 14-Mar-11 70 75.08 80 65 05-May-11 Cruz, Grisanti, Guarino, Arreaza

Sell 10yr Brazil Basis (BR2021 vs 10yr CDS) 16-Feb-11 45bp 17.8bp 25bp 55bp 05-May-11 Guarino

Sell 5y BEI Chile 08-Mar-11 3.88% 3.53% 3.35% 4% 04-May-11 Melzi,Zuniga

Sell EUR/CZK 22-Mar-11 24.49 24.2 23.9 24.6 04-May-11 Chow

Buy 3m atmf USD/KRW put with RKO at 1070 22-Mar-11 0.75% 0.25% 5.39% 0% 02-May-11 Verdi

Pay 1y1y Fwd TIIE 18-Mar-11 6.54% 6.22% 6.9% 6.2% 28-Apr-11 Melzi

Short USD/CLP 18-Mar-11 481.35 460.82 460 487 28-Apr-11 Melzi, Zuniga

Note: As of 04-05 May 2011 (trades are updated regionally). Methodology: P&L to target/P&L to stop is a measure of how much can be gained relative to how muchcan be lost. Both are calculated from the current value and reported in dollars. This measure does not take probabilities into account. Source: Barclays Capital


22/35


5 May 2011 22

FX VIEWS ON A PAGE

Currency

Tactical

bias Strategic directional view

Current strategy/

trades we like

Vol adj

6m

returns

Score

(1-5)

Emerging Asia

MYR Bullish Stronger growth, rising commodity prices, a healthy fiscal

position, and improved equity flows should lend supportto the currency.

Buy 3m USD/MYR put

spread with strikes 3.0237(ATM) and 2.94 and sell 3mUSD/MYR calls (strike: 3.07)

0.41 4.10

THB Bullish We expect the THBs recent underperformance to reverse.A robust economy and a strong external position arelikely to support modest THB appreciation.

0.32 3.90

KRW Bullish We believe still-sizeable current account surpluses and apreference to contain imported inflationary pressures willsee USD/KRW move towards 1025 by year-end.

0.29 3.55

CNY Bullish We expect the USD/CNY to move lower as the authoritiesreact to elevated inflation.

Sell 9m CNY NDF0.19 3.35

PHP Bullish We have slightly lowered our BoP surplus forecast. Inaddition, the central bank likely believes the REER is close

to fair value. We expect a modest move lower inUSD/PHP towards 41.5 by year-end.

0.24 3.20

INR Bullish The INR remains fairly well supported near term in thecontext of wider currency appreciation in the region,despite medium-term issues related to weak BoP dynamics.

Buy 1m one-touch USD/INRoption with a trigger at42.85/USD

0.14 3.15

HKD Neutral Increasing CNY deposits onshore may result in theRMB-isation of the economy.

-0.06 3.00

SGD Bullish The MASs concern relating to near-term inflationpressures is likely to support the SGD NEER.

Buy USD-EUR basket (60%-40%) versus SGD outright

0.14 2.80

TWD Bullish USD/TWD has moved sharply lower in recent weeks. Wethink the currency will drift towards the 28.5/USD levelover the next 1m.

Buy 1x1.5 USD/TWD putspread (strikes 28.85 and28.45) and sell a USDcall/TWD put (strike 29.5)

-0.08 2.60

IDR Bearish A shrinking current account surplus and high valuationon a REER basis point to IDR underperformance.

Buy 2m USD/IDR calls withan 8950/USD strike

-0.08 2.35

Latin America

PEN Bearish Politically related volatility is likely to continue during thenext few weeks. The final outcome of elections is stillunclear.

Buy 1m USD/PEN NDF0.19 3.60

BRL Bullish We target 1.50 in 3m as fundamentals are supportive andthe government acknowledges limitations of FXintervention.

Sell USD/BRL0.42 3.35

CLP Neutral Supportive fundamentals: strong domestic demand,hawkish monetary policy and bright outlook for copperprices. Government has increased FX interventionrhetoric.

0.23 3.10

MXN Neutral Improving domestic demand and US activity aresupportive, but it is hard to see a shift lower in USD/MXNunless Banxico signals a more aggressive monetary policystance than what is priced in. Positioning is overextended,in our opinion.

0.12 2.50

COP Neutral Supportive fundamentals (oil prices and monetary policynormalization), but FX intervention limits downside forUSD/COP.

0.10 2.05


23/35


5 May 2011 23

Currency

Tactical

bias Strategic directional view

Current strategy/

trades we like

Vol adj

6m

returns

Score

(1-5)

Emerging EMEA

RON* Bullish Improving C/A deficit plus prospects of further FX saleargue for, at worse, a stable RON. However, yields have,fallen due to capital inflows.

Buy 6m T-bills (6.7%indicative yield) FXunhedged

0.32 3.80

EGP Neutral Less uncertainty about the transition process may limitcapital flight, but the challenge facing the economy leavesno room for a stronger EGP.

0.60 3.55

PLN* Bullish M/t challenges remain in the Polish BoP but near-termtechnical positives (sale of EUR by the ministry of financeand privatisation flows) can trigger near-term zloty gains

Short EUR/PLN, Buy as a tail-risk hedge, 1m 4.08 digitial 0.29 3.15

HUF* Bullish A C/A surplus and a credible central bank stancecontinue to offset investor uncertainty on fiscal policy.Potential asset repatriation flows and the resumption ofeuro-linked lending are positive flows risks.

Sell TRY/HUF

0.16 3.05

ILS Bullish The terminal level for policy rates in the Israel hiking cyclehas likely risen. This, together with a structurally robustIsraeli BoP, should keep investors engaged in long ILS.

Short EUR/ILS0.13 2.65

TRY Bearish Historically low nominal yields are likely to feed thealready-large C/A deficit, making external funding harderas well. We expect a difficult Q2, with relief likely onlytowards year-end after a policy adjustment.

Buy USD call/TRY putspread, 3m, 1.60-1.70strikes, sell TRY/HUF

-0.18 2.40

CZK* Neutral The solid macro balances and tightening rate cycle shouldeventually push CZK higher. But with rising risk appetite,other higher beta currencies are likely to outperform

0.12 2.20

RUB Bullish Oil windfall is likely to keep the RUB well bid. However,structural capital outflows and the election cycle argue formore challenging times later this year.

-0.08 2.05

ZAR Neutral High commodity prices and a likely return of someportfolio flows on high real/nominal yields should provideenough capital inflows to fund the (modest) C/A deficit.

-0.17 1.70

UAH Neutral Depressed yields leave the UAH more exposed,particularly as the best of the capital inflows/de-dollarisation process are behind us.

KZT Bullish Kazakhstan benefits hugely from high oil prices, and thecentral bank has said it expects some appreciation,suggesting continued managed appreciation.

Sell USD/buy KZT through6m NDF

Note: * Versus EUR. The variable score is an index that ranks EM currencies according to the vol-adjusted returns, PPP valuation, carry, systemic risk, basicbalance/GDP and reserves accumulated over the past 5y/GDP. For more details on the trade recommendations, please see the EM Dashboard.Source: Barclays Capital


24/35


25/35

Barclays Capital | THE EMERGING MARKETS WEEKLY

5 May 2011 25

DATA REVIEW & PREVIEW: ASIA

Rahul Bajoria

Review of last weeks data releases

Main indicators Period Previous BarCap Actual Comments

China: PMI manufacturing Apr 53.4 54.2 52.9 Core prices continue to tick higher.

Korea: Exports (% y/y) Apr 30.3 24.6 26.6 Momentum in shipments remains robust.

Korea: CPI (% y/y) Apr 4.7 4.8 4.2 Lower food prices push inflation down, but core up.

Indonesia: CPI (% y/y) Apr 6.7 6.4 6.2 Inflation lower on better harvest, but core rose.

Thailand: CPI (% y/y) Apr 3.1 3.3 4.0 Strong upside surprise due to higher vegetable prices.

India: RBI: Repo rate (%) 6.75 7.00 7.25 A more decisive move from RBI amid rising inflation.

Bangko Sentral ng Pilipinas (%) Apr 4.25 4.50 4.50 We expect another 25bp rate hike from the BSP in July

Preview of week ahead

Monday 9 May Period Prev 2 Prev 1 Latest Forecast Consensus

16:00 Taiwan: Exports (% y/y) Apr 16.6 27.3 16.7 19.0 17.5

Taiwan: A positive monthly uptick likely on the back of strong momentum in electronics exports.

Tuesday 10 May Period Prev 2 Prev 1 Latest Forecast Consensu

09:00 Philippines: Exports (% y/y) Mar 16.6 27.3 16.7 9.0 7.5

10:00 China: Exports (% y/y) Apr 37.7 2.4 35.8 28 29.5

10:00 China: Imports (% y/y) Apr 51.2 19.6 27.3 28.5 28.9

Philippines: Exports to slow on less favourable pricing environment and possible activity disruption caused by earthquake in

Japan.

China: We expect export and import growth to moderate somewhat but remain strong. Trade balance to post a small surplus.

Wednesday 11 May Period Prev 2 Prev 1 Latest Forecast Consensus

07:00 Korea: Unemployment rate (%) Apr 3.6 4.0 4.0 3.8 3.8

10:00 China: CPI (% y/y) Apr 4.9 4.9 5.4 5.2 5.2

10:00 China: PPI (% y/y) Apr 6.6 7.2 7.3 7.1 7.0

10:00 China: Fixed asset investment (YTD, % y/y) Apr 24.9 24.9 25 24.8 24.9

1

54824773 barcap emerging markets weekly

Documents