Comentario económico 10 de noviembre de 2020

View from trading: Bullish Latam FX, but local factors at play

By Cedric de Ville de Goyet

Latam FX should benefit greatly from the vaccine news, given the very strict lockdowns it went through and the risk of second waves that would likely end up in the same result, and given the complete underpositioning in the market on that side. The last couple of months have been extremely slow in Latam FX, and broadly dominated by local flows. Systematic funds are long USD, mostly against COP, PEN and BRL (the latter being much easier to unwind and positioning likely to be cleaner there already). Real money rolls were mostly RHS too, namely in COP and PEN, while positioning in CLP is neutral to bearish. I see a lot of room for inflows, with good reasons not only to square shorts but also to go long some of these Latam currencies.

One needs to be aware of local factors at play though, with strong local bids in most of these currencies for different reasons:

• BRL: We have the overhedging story which could result in 12-15bn outflows into year end. The BCB has publicly showed their support given the high amount of FX reserve they hold, but I don’t see them intervening in a market where BRL remains stable while other currencies rally. That means in USDBRL, do not sell the dips as those are likely to be opportunistically be bought by local banks.
• CLP rallied ahead of the US elections mostly, on the back of 1) bearish positioning, 2) Hacienda selling USD, 3) FyF switching to 90% and then 100% local portfolio. The latter has been reversed to 60% over the weekend, and triggered some local outflows yesterday with USDCLP unchanged on the day despite the vaccine news. With those factors at play, one has to be mindful of the local bids around 750 and we prefer to sell USDCLP around 765.
• PEN: The news of Vizcarra being impeached last night makes the long PEN trade more difficult given the raised uncertainty. Real money are unlikely to remove long USDPEN hedges in this environment (systematic started selling USD though), so we need to wait for the dust to settle before adding to our USDPEN shorts. I have been short in anticipation of the second pension withdrawal.

COP – Probably my favourite long in Latam given the positioning. All rolls have been RHS over the past 2 months. Real money and systematic were long USDCOP and we have seen a flurry of inflows already. I believe the positioning adjustment should continue. Colombia had one of the most restrictive lockdowns across the world and the vaccine news is thus very positive for the local economy. The C/A deficit still needs to be funded and we have historically strong local bids around 3600 but I believe inflows will be sufficient, while locals may re-adjust their levels given the recent developments.

El repunte del COP recuerda la influencia del petróleo
El lunes, el COP vivió su quinta jornada consecutiva de apreciación, en la que repuntó más de un 1,9% y superó al
resto de divisas de LatAm. El avance de alrededor del 6,5% del Brent fue un factor contribuyente al
comportamiento positivo de divisa mientras las expectativas del mercado cambiaban. Las inversiones extranjeras
en Colombia se habían estancado durante varios meses debido a la caída de la actividad externa, lo que acentuó la
dependencia del COP del apetito por el riesgo global. Sin embargo, los anuncios relativos a la vacuna han
resultado particularmente beneficiosos para la energía y el COP debido a su implicación en la actividad. Teniendo
en cuenta las últimas noticias y el impulso, la tendencia actual podría continuar favoreciendo al COP, aunque los
movimientos por debajo y hacia el próximo soporte de 3.550 deberían ser mucho más limitados.