Deutsche Bank recommends upping Russian exposure via blue-chip state-controlled companies, in particular Gazprom, VTB and Sberbank, against their CDS and the sovereign CDS. In addition, as a result of a “poor technical position in the bonds (uncomfortable long positions) and prices of the bonds failing to respond to the recent rally in US treasuries and swap spreads, the basis between bonds and CDS of the Russian corporates has recently reached extreme negative levels.”
RBC advises against going long Turkish domestic 14% 2012 (5yr) yields at 17% or above – reversing their previous tip as ‘Top 8 for 2008’ trade ideas. “Although the latest global risk aversion shock has forced yields (17.27% current) above our 17% entry target, we are hesitant to enter the trade at this time, as it is a very directional bet and see further short-term upside risk to Turkish 5yr yields (+140bp since mid-Oct) before a downward trend resumes,” the bank says. In particular, it is concerned that inflationary risks remain to the upside as well as the near-term weakness of the TRY. RBC argues investors should only take part in this trade when external market conditions are more stable.
Standard Chartered argues that Korean won will outperform other Asian currencies this year, despite deteriorating market conditions. The bank is particularly encouraged by the government’s structural reforms, which are reducing the economy’s external vulnerability. For highly leveraged clients, the bank advises that the latest rally in USD-KRW is temporary and the real rise will come in the second and third quarter of the year. “Therefore in the short term we suggest a 1 month USD put/KRW call, potentially cheapened by selling a 3 month USD call/ KRW put with strike at 970. This costs 0.43% of the notional USD amount.” For corporates, the bank suggests raising hedge ratios for Korean exporters now “with a potential further opportunity to achieve as good or better hedging opportunities in Q2-Q3 when the USD is set to rise broadly in the region.”