Epstein Secrets

n. As within DM, we see a lot of divergences within EM and prefer to focus on under-owned markets with good domestic demand story such as Mexico and Malaysia. On the contrary we underweight export oriented countries in Asia such as Korea and Taiwan. Credit • Spread moves were mixed this week, as local t

uities could go nowhere for years to come. Fixed Income • Yesterday was a study in central bank contrasts, with the ECB sitting on its hands, while the Bank of Japan launched the most aggressive easing at a single meeting by any G-4 central bank. The BoJ surprise came in both the size of its programme — it will

6.5 5.7 4.5 6.0 4.9 j 4.5 4.5 5.0 5.5 4.5 4.3 3.9 4.6 Korea 3.6 2.2 3.01 1.1 02 15 2.51 4.0 4.5 4.5t 2.4 1.74 2.44 3.0 4 Malaysia 5.1 5.3 5.1 6.3 3.6 6,5 5.0 4.5 4.5 5.0 1.7 1.2 2.3 2.6 Philippines 3.8 6.4 4.8 5.0 52 43 t 4.5 4.9 t 5.3 t 5.3 t 2.9 2.3

than trend shifts. • Last week, we raised our USD/JPY forecasts from a 2013 range of 75.85 to a range of 80-90. We have always been sceptical that the Bank of Japan would be able to drive up Japanese inflation and drive down real yields versus the US to power USD/JPY higher throughout 2013, but there is no deny

e appreciation of the yen, once again pushing the Bank of Japan’s (BOJ’s) 2% inflation target further into the futu

u of Labor Statistics BOE: Bank of England BOJ: Bank of Japan CAGR: compound annual growth rate CDS: credit de

urce: Investment Strategy Group, Emerging Advisors Group, Goldman Sachs Global Investment Research. both China and the US, such as Korea, Taiwan and Malaysia, would be particularly vulnerable. While the net effect of these competing forces is positive in our base case, the risks are tilted to the downside

75 70 65 60 55 50 1/1/2010 5/1/2011 8/4/2012 = 1/1/2014) 5/1/2015 = 9/1/2016 Source: BofA Merrill Lynch Global Research true against the JPY given the Bank of Japan is pegging 10y JGB yields at zero. We are cognizant of the possibility that the willingness of Japanese investors — who have already bought record am

ents to rotate without too much disruption. We would expect China’s inclusion to account for 10% of the JPM GBI-EM Global Diversified index. Turkey, Malaysia, S. Africa, and Thailand would lose the largest shares in the index, while the shares of Brazil, Mexico, Poland and Indonesia are expected to remain

hard landing) hit trade and thus the economic prospects of emerging markets. In this case, we would expect a 25% decline in earnings. More defensive Malaysia would do better, whereas more cyclical Korea and Taiwan would underperform. We assume, however, that the market would also be expecting some recovery

should profit in the medium term. e Longer-term debt issues and weak competitiveness of major exporters are hurting the Japanese economy. Therefore the Bank of Japan and Ministry of Finance will maintain an expansive policy and continue to try weaken the JPY. However, current positive growth dynamics are supportiv

Foreign Exchange We remain underweight the Japanese yen. The Japanese economy continues to weaken against its peers, leading to rising pressure for the Bank of Japan to engage in further quantitative easing. We have closed our preference for the Canadian dollar following its recent strength, and therefore close ou

Chinese growth could each hit EM's economic prospects. In such a scenario, we would expect a 20% decline in earnings over six months. More defensive Malaysia would do better, whereas more cyclical South Korea and Russia would underperform. We assume, however, that the market would also be expecting some re

lar to QE itself. Beyond that, this is another small step towards perceptions that monetary policy is no longer independent from fiscal policy, like the Bank of Japan’s joint statement with two government ministers last month. Nobody knows the tipping point at which these perceptions feed into much higher inflation e

Oo) 5.0 58 6.0 68 84 10.1 98 9.0 Indonesia 65 57 3.5 477 6.0. 4.9 T 3.0 3.0 40 40 41 45 3.9 2.2 Korea 3.6 23 3.2 25 1.1 0.6 35 3.0 40 45 40 24 19 3.0 Malaysia 51 5.0 t 3.7 t 58 59 25 3.5 T 3.5 T 3.0 3.5 3.2 d 1.1 2 Philippines 3.8 53 35 12.6 0.9 12 2 45 45 45 47 29 23 23 Singapore 49 154 2.54 95) -07 3.90 3