Dave Fernandez
Chief Economist And Head Of Market Strategy, EM Asia
+65 6882-2461
STRICTLY PRIVATE AND CONFIDENTIAL
david.g.fernandez@jpmorgan.Com
Emerging Markets External Debt: JPM Investor Survey: All Investors
-1.5 800
Cash balances have declined, by 0.2% to 4.8%, but still remain relatively high as -2 1000
9/01 3/03 9/04 3/06 9/07 3/09
inflows to the asset class have remained robust. Strategic inflows have remained
strong, while preliminary estimates on Japanese retail fund inflows are positive. Source: J.P.Morgan
EMBIG yields have bounced off close to record lows, with the index yielding reaching 6.38% in early October against an
all-time low of 6.34% in April 2007. However, both cash rates and UST/US swap rates are much lower but nevertheless, these
SOVEREIGN EXTERNAL DEBT TECHNICALS:
The largest survey additions were in Colombia - where positions are now higher than in their peers in Brazil and Peru as spreads
are wider than both - in Mexico and Philippines, continuing short-covering, and re-entering large off-index positions in Korea.
Profit-taking emerged in Ukraine, against continued increases in Venezuela and no change in Argentina, indicating some
differentiation across the high beta credits emerging. Investors also scaled back Peru exposures.
Our questions this month focussed on EM corporate benchmarking: investors report holding now US$4.9 billion in funds
benchmarked against the CEMBI indices. These funds are spread across 11 managers, although many more managers are
reporting being at different stages of exploring similar fund launches.
The survey generated 165 responses from investors managing $427 billion. The main survey period was 19th to 21st October.
3
Review of our last month's survey
In our last survey on 24th September 2009:
We maintained technicals at neutral as the continued rise in exposures was offset by continued additions to cash. This
increase in cash came not from retail fund flows but rather from continued strategic allocations into the asset class.
Larger overweights in Indonesia, Russia and Venezuela increased further, with these last two still trading wide of other
credits. Mexico underweights were reversed, in light of new sovereign issuance.
Inflows have continued in a steady pace, with the majority of inflows to external debt funds. We believe these inflows
SOVEREIGN EXTERNAL DEBT INVESTOR SURVEY (END OCT 09)
Survey Methodology
Throughout this presentation, exposures are scored from -10 (all surveyed investors are very underweight) to +10 (all investors
are very overweight). Please refer to the 'Survey Methodology' slide at the end of this presentation for details.
4
Overall Market Exposure:
Positions up again, crossover continuing to add
Overall Market positions, weighted average Overall Market positions by investor-type Dedicated responses and cash balances
All Investors EMBIGD Spread (inv) Dedicated Crossover Trading Dedicated EMBIGD Spread (inv) Cash %
2 4 7
1.5 200 3 6 200
5
1 2
SOVEREIGN EXTERNAL DEBT INVESTOR SURVEY (END OCT 09)
4
0.5 1 3
0 400 0 2 400
-0.5 -1 1
600 0 600
-1 -2
-1
-1.5 800 -3 -2 800
-2 1000 -4 -3 1000
9/01 3/03 9/04 3/06 9/07 3/09 11/01 11/02 11/03 11/04 11/05 11/06 11/07 11/08 9/01 3/03 9/04 3/06 9/07 3/09
SOVEREIGN EXTERNAL DEBT TECHNICALS:
The rise in exposures continued once more, with the overall survey score rising by Overall Market positions by response
0.5 to 1.4, approaching the record high in March 2004 of 1.8. 22-Oct 24-Sep
50
45
EM accounts added exposure, with dedicated and trading account positions rising by 40
35
0.2. The largest change though was the continued additions by crossover investors,
30
adding a further 1.2 and now approaching record highs (1.4 now vs 1.7 in March 2006). 25
Cash balances have fallen, but only by 0.2% to 4.8%, still relatively high as inflows 20
15
to the asset class have remained robust.
10
5
While EMBIG spreads remain some distance from their record lows in early 2007, yields 0
V Underwt Underwt Neutral Overwt V Overwt
are very close to the lows, hitting 6.38% in early October against the record low of
Source: J.P. Morgan
6.34% in April 2007.
5
External Debt Survey:
CO, MX, KR, PH additions, UA, PE reductions
Average Credit Rating versus 5y CDS Exposure score versus 5y CDS spread Prior Month Exposure vs Monthly Change
3 4.0
2000 ID
1500 2 RU
3.0
ID
UA KR
1000 VE AR 2.0 RU VE
1 AR
SOVEREIGN EXTERNAL DEBT INVESTOR SURVEY (END OCT 09)
1.0 KR
500 0 CO UA UY
0.0
300 CDX -1 BRPE PE
RO -1.0 BR CO
HUHR
BG PA PA
RU CO IDTR
PH -2 ZA HR
MX HR -2.0
PL ZA BRPE PA PL MX ZA
100 -3 PL
KR MY PH RO -3.0
MY TR
HU
BG EC BG RO
HU MX
CL -4 CL -4.0 TR CL MY PH
We have noted for a few months now the split in the market with countries from Country exposure change and size-weighted score
Malaysia through the LatAm IG-cusp countries out to the Indonesia, Philippines and 0.9
4.5 0.7
Turkey grouping trading in a separate relationship to other credits on a ratings basis 0.5
2.5
(top left chart). The convergence between the two continues however, with the 0.3
0.5 0.1
wider spread countries continuing to move in and now much less dispersion across -0.1
-1.5
names. -0.3
-0.5
-3.5
-0.7
The largest survey additions came in Colombia, now comfortably the most commonly -5.5 -0.9
Malaysia
Russia
Panama
Bulgaria
Croatia
South Africa
Romania
Poland
Indonesia
Brazil
Ecuador
Colombia
Korea
Philippines
Uruguay
Hungary
Ukraine
Venezuela
Argentina
Mexico
Chile
Turkey
Peru
held position in the LatAM IG grouping, while further short-covering was seen in
Mexico and the Philippines, while investors re-entered large off-index overweights
Level Change (rhs)
in Korea. At the other end, investors reduced exposures again in Croatia ahead of
Source: J.P. Morgan
supply, while profit-taking was seen in Ukraine. Investors also tapered their Peru
exposure, putting positions back in line with Brazil.
6
Corporate Market Exposure:
Maintain technicals at neutral
Market Exposure positions, weighted average Market Exposure positions by investor-type Average corporate and bank score
All Investors CEMBI Spreads (inv) Dedicated Crossover Trading 3.0 October Monthly Change
2.00 2.00
1.50 2.0
1.50
1.00
SOVEREIGN EXTERNAL DEBT INVESTOR SURVEY (END OCT 09)
1.00 1.0
0.50
0.50 0.00 0.0
500
-0.50
0.00 -1.0
SOVEREIGN EXTERNAL DEBT TECHNICALS: NEGATIVE
-1.00
-0.50 1000 -2.0
-1.50
-1.00 1500 -2.00 -3.0
7/03 7/04 7/05 7/06 7/07 7/08 7/09 7/03 7/04 7/05 7/06 7/07 7/08 7/09
RU
SG
MX
MY
BR
KR
ID
AR
KZ
TH
IN
CN
UA
HK
Source: JP Morgan Source: JP Morgan Source: JP Morgan
In October, the overall corporate exposure score declined by 0.39 to 0.34. Most notable was the move by
dedicated investors, moving back to an almost neutral position at 0.16. In contrast, trading accounts
continued to increase exposure and have now reached their all-time high exposure score at 1.70, up 0.35
from September.
In general, investors lightened positioning across the board at the country level. Changes were most noticeable
at each end of the overweight and underweight spectrum, with investors cutting OW positioning in Brazil
and increasing exposure in Malaysia. Overall, the top four exposures remain in Brazil, Korea, Kazakhstan and
Russia. Outisde of Malaysia, investors reported adding in Korea and Indonesia.
We maintain corporate technicals this month at neutral. We believe the pickup in new issuance is largely offset
by the reinvestment flows that should underpin primary activity and the neutral position of dedicated investors.
We note that for the first time in over two years, all three investor types are reporting positive exposure scores.
7
Strong strategic inflows prevail
We estimate that ytd inflows into emerging markets debt from EM Strategic Flows: by month
strategic and retail sources stand at $12.7bn. $bn
Strategic Strategic
5 External Local
4
SOVEREIGN EXTERNAL DEBT INVESTOR SURVEY (END OCT 09)
Since the reversal of retail flows in April, investors have added $3.86bn, 3
redemptions. -1
-2
-3
Although more outflows in money markets funds are seen, investors are instead
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
reallocating funds to developed markets. Inflows into Emerging Markets
SOVEREIGN EXTERNAL DEBT TECHNICALS:
-10
-14.3
-20
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2005 2006 2007 2008 2009
8
Smaller cashflows and issuance until year end
EM sovereign debt issuance (annual, cumulative)
Net issuance amount for the remainder of the year will be positive as $bn
70 Full year
expected EMBIG-eligible issuance of $4bn will exceed the $2.8bn coupon 64.5
60 2009 60.6
and amortization payments until year end. forecast
50 50.4
40
We anticipate $1.6bn of cashflows in November, with the largest flow 35.9
SOVEREIGN EXTERNAL DEBT INVESTOR SURVEY (END OCT 09)
Sovereigns have completed 94% of the expected $64.5bn issuance this year. 10
This is more than double our initial forecast of $28.6bn as of last December. 0
Realized issuance ytd has already exceeded the annual amount for the past Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2006 2007 2008 2009
3 years.
Source: J.P. Morgan estimates
SOVEREIGN EXTERNAL DEBT TECHNICALS:
2009 estimated external financing requirements and index sovereign coupons/amortizations (all $-equivalent)
Remaining Issuance Completed Issuance Forecast Coupons & Amorts 70
16
14 60
12
10 50
8 40
6
4 30
2 20
10
Pakistan
Jamaica
Panama
Russia
Croatia
Indonesia
Lithuania
Poland
Romania
South Africa
Brazil
Vietnam
Czech Republic
Lebanon
Colombia
Hungary
Philippines
Ukraine
Uruguay
Argentina
China
Venezuela
Mexico
Peru
Chile
Turkey
Other
Total
Source: J.P. Morgan
9
Highest level of EMBIG-eligible issuance in October
An additional $24bn in new debt was brought into the market in October, bringing the total issuance amount for EM ytd to $158bn.
Sovereigns alone accounted for $10.2bn, half of which came from Venezuela's 2019 and 2024 notes. Consequently, October has now
produced the most EMBIG-eligible debt.
SOVEREIGN EXTERNAL DEBT INVESTOR SURVEY (END OCT 09)
Year-to-date, $51bn in EMBIG-eligible bonds have entered the market, with quasi-sovereigns accounting for 17%. While Venezuela
also sold $3bn in PDVSA bonds, these will not be included in the EMBIG.
Corporates have issued $13bn mtd for a total of $135bn ytd. Brazil, the Emirates and Korea are the leading countries of corporate
issuance, having sold $13bn, $10bn and $10bn, respectively.
We expect another $4.4bn of new sovereign issuance for the remainder of the year.
SOVEREIGN EXTERNAL DEBT TECHNICALS:
EMBIG and EURO EMBIGl sovereign cpn and amort payments (US$ equiv) Emerging Markets 2009 Debt Issuance by Month
US$ bn US$ bn
USD Bonds EUR Bonds 35 EMBIG Sovereigns Other EMBIG Other Sovereign Other
10
9 $
30
8
7 25
6
5 20
4
15
3
2 10
1
0 5
Nov-09
Jun-10
Dec-09
Aug-10
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Sep-10
Oct-10
Jul-10
Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09
Source: J.P. Morgan
11
Heavy sovereign issuance resumes across regions
The Philippines issues an additional $1bn Venezuela's $5bn was well-received
US$ bn Asia US$ bn Latin America
14 25
Full year 2009 Full year 2009
12
forecast, 11.6 20 forecast, 21.42 19.6
10.6 18.4
10
SOVEREIGN EXTERNAL DEBT INVESTOR SURVEY (END OCT 09)
8 8.2 15
14.2
11.6
6 10
5.2
4 3.8
5
2
0 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Lithuania's $1.5bn may warrant its inclusion in the EMBIG No issuance since August
US$ bn Emerging Europe US$ bn Africa & Middle East
22 14
Full year 2009
Full year 2009 forecast, 12.9
18.5 18.5 12 11.9
18 forecast, 19.1
10
14 14.3
8 7.8
11.0
10 6 6.1
6 4
2 1.8
2
0 -
-2 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
12
Retail fund inflows continue
Local markets as % of portfolios - Intl investors EM inflows pick up further EM equity AUM continues to grow
40% Hard
500
10
30%
Local
400
20% 5 Blend
300
10%
200
0%
9/05 3/06 9/06 3/07 9/07 3/08 9/08 3/09 9/09 -5 100
Dec-03 May-05 Sep-06 Feb-08 Jun-09 Jan-05 May-06 Sep-07 Feb-09
SOVEREIGN EXTERNAL DEBT TECHNICALS:
Source: J.P. Morgan Source: J.P. Morgan and EPFR Global Source: EPFR Global
On local markets exposure, we received 115 responses, representing $336bn of AUM. EM hard currenct recovered more than 50%
US$ bn
60
Changes this month were far more modest, with crossover and trading accounts
50
stabilising after some larger moves, while dedicated positions nudged slightly higher. Hard
40
Retail fund flows have continued to come back into the market, augmenting the 30 Local
strategic inflows seen throughout a longer period of the year. Both local and hard 20
currency funds have attracted inflows, although hard currency funds have marginally 10
outperformed, partly due to very strong inflows into EM bond ETFs. Blend
14
Indonesia: Issuance
All Investors Indonesia Spread (inv) Dedicated Crossover Trading 1450 5Y CDS Estimated Fit
3 100
4 1250
2
1050
1
SOVEREIGN EXTERNAL DEBT INVESTOR SURVEY (END OCT 09)
2 850
0
650
0
-1 450
-2 600 -2 250
-3 50
-4
-4 1100 20% % Deviation from Fit
-5 -6 -20%
10/01 4/03 10/04 4/06 10/07 4/09 10/01 10/02 10/03 10/04 10/05 10/06 10/07 10/08 -60%
10/06 4/07 10/07 4/08 10/08 4/09 10/09
Source: J.P. Morgan Source: J.P. Morgan Source: J.P. Morgan
SOVEREIGN EXTERNAL DEBT TECHNICALS:
Positions dropped very slightly by 0.2 to 2.5, still the largest overweight within Indonesia positions by response
our survey. 22-Oct 24-Sep
50
45
Dedicated exposures were flat, close to record highs, but crossover investors pulled 40
back after last month's strong addition. Trading accounts inched only slightly higher 35
30
by 0.1 and remain relatively close to neutral. 25
20
The announcements on more of the government posts emerged as the survey was 15
10
being conducted, although these announcements contained few surprises and showed
5
a continuation of a very investor-friendly, technocratic team being put in place by 0
President Yudiyono. V Underwt Underwt Neutral Overwt V Overwt
Source: J.P. Morgan
33
Malaysia: Issuance
All Investors Malaysia Spread (inv) Dedicated Crossover Trading 500 5Y CDS Estimated Fit
2
1
4 400
100
2
SOVEREIGN EXTERNAL DEBT INVESTOR SURVEY (END OCT 09)
0 300
-1 0 200
200
-2 100
-2
300
-3
400 -4 0
-4 40% % Deviation from Fit
500
-5
-6 0%
-40%
10/01 4/03 10/04 4/06 10/07 4/09 10/01 4/03 10/04 4/06 10/07 4/09
10/06 4/07 10/07 4/08 10/08 4/09 10/09
Source: J.P. Morgan Source: J.P. Morgan Source: J.P. Morgan
SOVEREIGN EXTERNAL DEBT TECHNICALS:
Positions were marginally higher, rising by just 0.1 from last month to -3.8, one Malaysia positions by response
of the largest survey underweights. 22-Oct 24-Sep
45
40
The bounce came from EM accounts, with dedicated investors adding by 0.3 while 35
trading added by 0.2. Crossover investors cut marginally by 0.1. 30
25
Malaysia has underperformed other credits over the past month, as shown by our 20
15
chart in the top-right. After trading strongly through other credits in the middle part
10
of 2009, it is not participated to the same extent in the strong tightening in credit 5
spreads since that time. 0
V Underwt Underwt Neutral Overwt V Overwt
Source: J.P. Morgan
34
Philippines: Issuance
All Investors Philippines Spread (inv) Dedicated Crossover Trading 1600 5Y CDS Estimated Fit
2 100 2 1400
1 1 1200
0 1000
SOVEREIGN EXTERNAL DEBT INVESTOR SURVEY (END OCT 09)
0
-1 800
-1
300 -2 600
-2 400
-3
-3 500 200
-4 0
-4 700 -5 % Deviation from Fit
40%
-5 -6 -20%
-80%
9/01 12/02 3/04 6/05 9/06 12/07 3/09 9/01 12/02 3/04 6/05 9/06 12/07 3/09
10/06 4/07 10/07 4/08 10/08 4/09 10/09
Source: J.P. Morgan Source: J.P. Morgan Source: J.P. Morgan
SOVEREIGN EXTERNAL DEBT TECHNICALS:
This month's short-covering was the 4th largest survey increase, pushing the Philippines positions by response
overall score up by 0.4 to -3.3. 22-Oct 24-Sep
45
40
All investor categories short-covered, with dedicated (+0.3) and crossover (+0.6) 35
active but the largest change coming from trading accounts, who moved firmly 30
35
Survey Methodology
We survey institutional investors and corporates with exposure in emerging market sovereign external debt.
– Dedicated investors, comprising investors with dedicated (or pure) emerging markets portfolios.
Corporates are included within this category.
– Crossover investors, comprising investors whose portfolio benchmarks have small or no allocation
to emerging markets. For these investors, emerging markets is an off-index allocation or a small
part of their indices. Typical crossover investors are G7 government bond funds or US high grade
credit funds.
SOVEREIGN EXTERNAL DEBT TECHNICALS:
– Trading investors, comprising hedge funds and proprietary traders who typically have a total
return benchmark.
Participants are asked how they are positioned for exposure for each asset.
Possible responses are Very Overweight, Overweight, Neutral, Underweight, Very Underweight and N/A.
Responses are scored +10, +5, 0, -5, and -10 and are weighted by assets under management to produce a
weighted average score. A weighted score of +10 would mean that everyone who responded is Very Overweight.
A response of N/A is ignored for the calculation of the results.
36
China FX:
Dedicated investors move further overweight
China FX positions, weighted average China FX positions by investor-type Global EM FX exposure vs. ELMI+ subindex yields
0.5 TW HU RO
-2 -1.0 MY
CZ
0 CL
8 -3 HK ZA
-0.5 -2.0 SGPETH
-4
-1 -5 -3.0
3/06 9/06 3/07 9/07 3/08 9/08 3/09 9/09 3/06 9/06 3/07 9/07 3/08 9/08 3/09 9/09 -5 0 5 10 15
Investors continue to add to long CNY positions, rising a further 0.5 EM FX 1m prior exposure vs 1m Exposure Change
this month to +0.6. 4.0
BR
3.0
Last month, all investor categories added but this month, it was solely 2.0
ID
TR
MX KR
real money, the largest rise coming from dedicated investors (+0.8). EG IN
PL
1.0
Trading accounts were already significantly overweight. IL CO RU
PH
0.0 TW CN
HU RO
CZ
While spot USD/CNY has remained in a very tight range, 12-month -1.0
CL
MY
NDFs have continued to move lower, bouncing off recent lows at 6.60, -2.0
SG
PE HK ZA
TH
although still some way off the 1Q08 levels of 6.30. -3.0
-0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0
Source: J.P.Morgan
10
India FX:
Divestment process supporting moves overweight
India FX positions, weighted average India FX positions by investor-type Global EM FX exposure vs. ELMI+ subindex yields
-2 TW HU RO
-2 -1.0 MY
CZ
50 CL
-4 HK ZA
-3 -2.0 SGPETH
55
-4 -6 -3.0
3/06 9/06 3/07 9/07 3/08 9/08 3/09 9/09 3/06 9/06 3/07 9/07 3/08 9/08 3/09 9/09 -5 0 5 10 15
Positions increased sharply this past month, rising by 0.8 to 2.0, the EM FX 1m prior exposure vs 1m Exposure Change
third-largest increase in this survey. 4.0
BR
3.0
Real money investors added this past month, with dedicated investors 2.0
ID
TR
MX KR
adding strongly via a 1.7 rise. Trading accouns, however, took some EG IN
PL
1.0
profits with exposures falling by 1.0. IL CO RU
PH
0.0 TW CN
HU RO
CZ
While this week's announcement of a one-time inflow from India's -1.0
CL
MY
approval of a top-up investment by Telenor is relatively small, it -2.0
SG
PE HK ZA
TH
does indicate an increase in the divestment plan for India, and suggests -3.0
that further FX inflows could be seen. Furthermore, the RBI remains -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0
All Investors GBI-EM India (Yield, inv) Dedicated Crossover Trading 5.0
2 3
4.0 BR
6 2
1 3.0
MX TR
1
2.0 ID
0 CO
7 0 1.0 HU
KRPL
EG
-1 -1 0.0 CZ
IN RU
ASIA LOCAL MARKETS INVESTOR SURVEY (END OCT 09)
8 -2 -1.0 SG
-2 IL
-3 -2.0 PE
-3 9 MY
-4 TH ZA
-3.0 CL
-4 10 -5 -4.0
7/06 1/07 7/07 1/08 7/08 1/09 7/09 7/06 1/07 7/07 1/08 7/08 1/09 7/09 0 2 4 6 8 10 12 14
Positions continued their march higher, rising by 0.3 this month although EM Rates 1m prior exposure vs 1m Exposure Chg
still underweight at -0.6. 5.0
4.0 BR
This increase was solely a function of dedicated position changes, with 3.0
TR MX
2.0
exposures rising by 1.0 from last month. Crossover positions were CO ID
1.0 HU
unchanged while trading accounts were very marginally higher by 0.1. EG
PL KR
0.0 CZ
SG RU
-1.0 IL IN
Our India rates strategy team believe the markets have priced in -2.0 MY PE
potential rate hikes too soon, especially as credit growth has not yet -3.0
CL TH
ZA
taken off; they expect the 1-year OIS to decline into year-end, although -4.0
they are cautious approaching the January policy announcement. -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0
Source: J.P.Morgan
13
Indonesia FX:
Move higher driven by crossover
Indonesia FX positions, weighted average Indonesia FX positions by investor-type Global EM FX exposure vs. ELMI+ subindex yields
TW HU RO
1.5 12000 -1 -1.0 MY
CZ
CL
1 -2 HK ZA
13000 -2.0 SGPETH
0.5 -3
0 -4 -3.0
3/06 9/06 3/07 9/07 3/08 9/08 3/09 9/09 3/06 9/06 3/07 9/07 3/08 9/08 3/09 9/09 -5 0 5 10 15
Positions moved higher again this month, rising by 0.2 to 2.7 although EM FX 1m prior exposure vs 1m Exposure Change
this increase was broadly consistent with moves seen elsewhere. 4.0
BR
3.0
Dedicate positions changes were very small,rising by just 0.1 from last 2.0
ID
TR
MX KR
month, while trading accounts were more aggressive with positions EG IN
PL
1.0
falling by 0.8 as some profit-taking emerged. Crossover accounts though IL CO RU
PH
0.0 TW CN
have continued adding sharply, rising 0.8 from September. HU RO
CZ
-1.0
MY
CL
The political news flow from Indonesia remains strongly supportive, -2.0
SG
PE HK ZA
TH
most recently the announcement that Golkar would return to the -3.0
ruling coalition and strengthening the mandate to now cover more than -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0
14
Indonesia Rates:
Crossover again drive the move higher
Indonesia Rates positions, weighted average Indonesia Rates positions by investor-type Global EM local rates exposure vs. EM local yield
All Investors GBI-EM Indonesia (Yield, inv) Dedicated Crossover Trading 5.0
4 6
4.0 BR
3.5 5
10 3.0
MX TR
3 4
2.0 ID
2.5 3 CO
1.0 KRPL HU
EG
2 2 0.0 CZ
15
1.5 1 IN RU
ASIA LOCAL MARKETS INVESTOR SURVEY (END OCT 09)
-1.0 SG IL
1 0 -2.0 PE
20 MY
0.5 -1 TH ZA
-3.0 CL
0 25 -2 -4.0
1/06 7/06 1/07 7/07 1/08 7/08 1/09 7/09 1/06 7/06 1/07 7/07 1/08 7/08 1/09 7/09 0 2 4 6 8 10 12 14
After last month's reductions, investor positions rebounded, rising by EM Rates 1m prior exposure vs 1m Exposure Chg
0.4 to +2.0. 5.0
4.0 BR
Source: J.P.Morgan
15
Korea FX:
Strong additions once more, similar to Poland
Korea FX positions, weighted average Korea FX positions by investor-type Global EM FX exposure vs. ELMI+ subindex yields
-2 TW HU RO
-2 -1.0 MY
CZ
CL
1400 -4 HK ZA
-3 -2.0 SGPETH
-4 -6 -3.0
3/06 9/06 3/07 9/07 3/08 9/08 3/09 9/09 3/06 9/06 3/07 9/07 3/08 9/08 3/09 9/09 -5 0 5 10 15
Investors continue to add to KRW exposure, with positions now the EM FX 1m prior exposure vs 1m Exposure Change
second-largest in the survey after a 0.9 increase this month to 2.8. 4.0
BR
3.0
The increase came from real money accounts, with dedicated (+0.9) 2.0
ID
TR
MX KR
and crossover (+1.9) adding while trading accounts took some profits, EG IN
PL
1.0
falling by 0.4. IL CO RU
PH
0.0 TW CN
HU RO
CZ
Both KRW and PLN have seen strong additions by investors over the past -1.0
CL
MY
several months, with both seen as the two currencies that had seen -2.0
SG
PE HK ZA
TH
the greatest overshoot through the credit crunch. Both are also now -3.0
towards the top-end of overall positions in EMFX. -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0
Source: J.P.Morgan
16
Korea Rates:
Rates exposures follow FX higher
Korea Rates positions, weighted average Korea Rates positions by investor-type Global EM local rates exposure vs. EM local yield
All Investors GBI Korea (Yield, inv) Dedicated Crossover Trading 5.0
1 4 4
4.0 BR
0.5 3
3.0
2 MX TR
0 4.5 2.0 ID
1 CO
-0.5 HU
0 1.0 KRPL
5 EG
-1 0.0 CZ
-1
IN RU
ASIA LOCAL MARKETS INVESTOR SURVEY (END OCT 09)
-1.5 -1.0 SG
-2 IL
5.5
-2 -3 -2.0 PE
MY
-2.5 TH ZA
6 -4 -3.0 CL
-3 -5 -4.0
3/06 9/06 3/07 9/07 3/08 9/08 3/09 9/09 3/06 9/06 3/07 9/07 3/08 9/08 3/09 9/09 0 2 4 6 8 10 12 14
As with FX, investors also added strongly to rates exposures, rising by EM Rates 1m prior exposure vs 1m Exposure Chg
0.8 to 0.9. 5.0
4.0 BR
Real money accounts are now overweight in Korea, with dedicated 3.0
TR MX
adding by 0.5 while crossover accounts added more aggressively, rising 2.0
CO ID
1.0
by 2.0. Trading accounts moved slightly further underweight. EG HU
0.0 CZ
PL KR
SG RU
-1.0 IL IN
The Financial Services Commission (FSC) announced this week some -2.0 MY PE
changes to the operation of the call money market, in order to improve -3.0
CL TH
ZA
the transmission mechanism fo monetary policy. However, the impact -4.0
on the money market is likely to take some time to filter through. -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0
Source: J.P.Morgan
17
Malaysia FX:
Positions move higher in response to $ weakness
Malaysia FX positions, weighted average Malaysia FX positions by investor-type Global EM FX exposure vs. ELMI+ subindex yields
0 TW HU RO
-1 MY
-1.0 CL CZ
-1 3.6
HK ZA
-3 -2.0
-2 SGPETH
-3 3.8 -5 -3.0
3/06 9/06 3/07 9/07 3/08 9/08 3/09 9/09 3/06 9/06 3/07 9/07 3/08 9/08 3/09 9/09 -5 0 5 10 15
Underweights were reduced again, with positions rising by 0.4 from EM FX 1m prior exposure vs 1m Exposure Change
last month to -0.9. 4.0
BR
3.0
All investor categories added, with dedicated adding by 0.3, crossover 2.0
ID
TR
MX KR
by 0.7 and trading by 0.8. EG IN
PL
1.0
PH
IL CO RU
0.0 TW CN
The move in US$/MYR is consistent with that seen elsewhere in Asia, HU RO
CZ
with central banks allowing some strengthening over the past month -1.0
CL MY
or so in response to a broader weaker US$. -2.0
SG
PE HK ZA
TH
-3.0
-0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0
Source: J.P.Morgan
18
Malaysia Rates:
Further underweight, watch tomorrow's budget
Malaysia Rates positions, weighted average Malaysia Rates positions by investor-type Global EM local rates exposure vs. EM local yield
All Investors GBI-EM Malaysia (Yield, inv) Dedicated Crossover Trading 5.0
3 5
4.0 BR
3 4
2 3 3.0
MX TR
2 2.0 ID
1 CO
3.5 1 1.0 HU
KRPL
EG
0 0 0.0 CZ
4 -1 IN RU
ASIA LOCAL MARKETS INVESTOR SURVEY (END OCT 09)
-1 -1.0 SG IL
-2
-2.0 PE
-2 4.5 -3 MY ZA
-4 -3.0 CL TH
-3 5 -5 -4.0
7/06 1/07 7/07 1/08 7/08 1/09 7/09 7/06 1/07 7/07 1/08 7/08 1/09 7/09 0 2 4 6 8 10 12 14
Positions moved slightly lower again this past month, falling by 0.2 EM Rates 1m prior exposure vs 1m Exposure Chg
to -2.3. 5.0
4.0 BR
The reduction came from all investor categories, with real money 3.0
TR MX
2.0
moving slightly more underweight by 0.2 while trading accounts moved CO ID
1.0 HU
back to neutral, cutting 0.6. EG
PL KR
0.0 CZ
SG RU
-1.0 IL IN
Our Asia strategy team continue to believe that the fiscal outlook in -2.0 MY PE
Malaysia is not as poor as commonly perceived, although the 2010 -3.0
CL TH
ZA
budget, scheduled for publication tomorrow, will provide further -4.0
insights. -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0
Source: J.P.Morgan
19
Philippines FX:
Crossover push positions further overweight
Philippines FX positions, weighted average Philippines FX positions by investor-type Global EM FX exposure vs. ELMI+ subindex yields
-2 TW HU RO
0 50 MY
-1.0 CL CZ
-4 HK ZA
-1 -2.0 SGPETH
55
-2 -6 -3.0
3/06 9/06 3/07 9/07 3/08 9/08 3/09 9/09 3/06 9/06 3/07 9/07 3/08 9/08 3/09 9/09 -5 0 5 10 15
Positions headed higher once more, rising further into overweight EM FX 1m prior exposure vs 1m Exposure Change
territory via a 0.3 increase to 1.0. 4.0
BR
3.0
This increase was solely due to crossover position adjustments, however, 2.0
ID
TR
MX KR
with exposures there rising by 1.2 to overweight while dedicated and EG IN
PL
1.0
trading account positions were unchanged. IL CO RU
PH
0.0 TW CN
HU RO
CZ
As elsewhere in Asia, US$/PHP broke below recent ranges as regional -1.0
CL
MY
central banks responded to a broad US$ weakening environment. -2.0
SG
PE HK ZA
TH
-3.0
-0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0
Source: J.P.Morgan
20
Singapore FX:
Small short-covering compared to the region
Singapore FX positions, weighted average Singapore FX positions by investor-type Global EM FX exposure vs. ELMI+ subindex yields
-1 TW HU RO
-2 MY
-1.0 CL CZ
-2
HK ZA
1.6 -4 -2.0
-3 PETH
SG
-4 -6 -3.0
3/06 9/06 3/07 9/07 3/08 9/08 3/09 9/09 3/06 9/06 3/07 9/07 3/08 9/08 3/09 9/09 -5 0 5 10 15
Underweights reduced, but only very marginally via a 0.1 increase from EM FX 1m prior exposure vs 1m Exposure Change
September to -2.1. 4.0
BR
3.0
At the category level, the largest rise (as in many other markets) came 2.0
ID
TR
MX KR
from crossover accounts adding by 0.3. Dedicated accounts also added EG IN
PL
1.0
by 0.1 while trading accounts moved marginally more underweight by IL CO RU
PH
0.0 TW CN
-0.2. HU RO
CZ
-1.0
MY
CL
Considering the scale of moves elsewhere, along with the already -2.0
SG
PE HK ZA
TH
significant underweight positioning from last month, the move in SGD -3.0
exposures was far smaller than for other markets, especially those -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0
21
Taiwan FX:
Dedicated take profits and move to neutral
Taiwan FX positions, weighted average Taiwan FX positions by investor-type Global EM FX exposure vs. ELMI+ subindex yields
TW HU RO
-1.5 34 -2 -1.0 MY
CZ
CL
-2 HK ZA
-4 -2.0 SGPETH
-2.5
36
-3 -6 -3.0
3/06 9/06 3/07 9/07 3/08 9/08 3/09 9/09 3/06 9/06 3/07 9/07 3/08 9/08 3/09 9/09 -5 0 5 10 15
Last month's short-covering was eliminated, with investors reducing EM FX 1m prior exposure vs 1m Exposure Change
exposures by 0.5 to -0.5, the largest survey decrease. 4.0
BR
3.0
This reversal came from dedicated accounts, who took profits on their 2.0
ID
TR
MX KR
1-month overweight position and moved back to neutral, falling by EG IN
PL
1.0
0.9. Crossover and dedicated were close to unchanged. IL CO RU
PH
0.0 TW CN
HU RO
CZ
Given the low level of implied interest rates (the lowest across our -1.0
CL
MY
survey), positions in Taiwan still remain marginally overweight even -2.0
SG
PE HK ZA
TH
after this month's correction. -3.0
-0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0
Source: J.P.Morgan
22
Thailand FX:
Further short-covering from dedicated
Thailand FX positions, weighted average Thailand FX positions by investor-type Global EM FX exposure vs. ELMI+ subindex yields
TW HU RO
-2 MY
-2 36 -1.0 CL CZ
-3 ZA
HK
-3 38 -4 -2.0 SGPETH
-4 -5 -3.0
3/06 9/06 3/07 9/07 3/08 9/08 3/09 9/09 3/06 9/06 3/07 9/07 3/08 9/08 3/09 9/09 -5 0 5 10 15
Positions headed higher still this month, rising by 0.4 to -2.0, the EM FX 1m prior exposure vs 1m Exposure Change
highest seen since mid-2008. 4.0
BR
3.0
The continued move back towards neutral came from dedicated 2.0
ID
TR
MX KR
accounts, where exposures rose by 0.7 from our September survey. EG IN
PL
1.0
Crossover short-covering corrected marginally with a 0.2 decline while IL CO RU
PH
0.0 TW CN
trading accounts remained at neutral. HU RO
CZ
-1.0
MY
CL
While US$/THB also broke lower through the long-held range, the move -2.0
SG
PE
TH HK ZA
was relatively small and the authorities appear to still be active in -3.0
ensuring that competitiveness gains are not lost. -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0
Source: J.P.Morgan
23
Thailand Rates:
Trading cut overweights back to neutral
Thailand Rates positions, weighted average Thailand Rates positions by investor-type Global EM local rates exposure vs. EM local yield
All Investors GBI-EM Thailand (Yield, inv) Dedicated Crossover Trading 5.0
2 2 5
4.0 BR
1 3
3.0
MX TR
0 1 2.0 ID
3 CO
-1 -1 1.0 KRPL HU
EG
0.0 CZ
-2 -3
4 IN RU
ASIA LOCAL MARKETS INVESTOR SURVEY (END OCT 09)
-1.0 SG IL
-3 -5
5 -2.0 PE
MY
-4 -7 TH ZA
-3.0 CL
6
-5 -9 -4.0
3/06 9/06 3/07 9/07 3/08 9/08 3/09 9/09 3/06 9/06 3/07 9/07 3/08 9/08 3/09 9/09 0 2 4 6 8 10 12 14
Short-covering took a pause this past month, with positions falling EM Rates 1m prior exposure vs 1m Exposure Chg
slightly by 0.2 to -2.9. 5.0
4.0 BR
Source: J.P.Morgan
24
Survey Methodology
We survey institutional investors and corporates with exposure in EM local markets.
– Crossover investors, comprising investors whose portfolio benchmarks have small or no allocation
to emerging markets. For these investors, emerging markets is an off-index allocation or a small
part of their indices. Typical crossover investors are G7 government bond funds or US high grade
credit funds.
– Trading investors, comprising hedge funds and proprietary traders who typically have a total
return benchmark.
Participants are asked how they are positioned for exposure for each asset.
Possible responses are Very Overweight, Overweight, Neutral, Underweight, Very Underweight and N/A.
Responses are scored +10, +5, 0, -5, and -10 and are weighted by assets under management to produce a
weighted average score. A weighted score of +10 would mean that everyone who responded is Very Overweight.
A response of N/A is ignored for the calculation of the results.
67
William OswaldAC
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reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst’s compensation was, is, or will be directly or indirectly related to the
specific recommendations or views expressed by the research analyst(s) in this report.
Analysts’ Compensation: The research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client
feedback, competitive factors and overall firm revenues. The firm’s overall revenues include revenues from its investment banking and fixed income business units.
Other Disclosures
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GLOBAL EM LOCAL MARKETS INVESTOR SURVEY (OCT 09)
EMERGING MARKETS FX & INTEREST RATE TECHNICALS:
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EMERGING MARKETS FX & INTEREST RATE TECHNICALS:
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