28 Apr 2016
Go long PLN as concerns around 'risks' are overdone – Deutsche Bank
Gautam Kalani, Strategist at Deutsche Bank, notes that the downgrade risks, fiscal fears, worries about a rate cut and fx mortgage conversion concerns have been cited as reasons behind the latest depreciation in PLN.
Key Quotes
“But we’ve heard it all before – in January. In reality, this move lower in PLN has more to do with position clearing of PLN longs that built up over the past 2 months, and was exacerbated by the favourable external environment for the high yielders – this is likely the reason behind the bond redemptions we saw earlier in the week, as there is increased incentive to allocate capital to the high yielders given the benign external backdrop and dollar weakness.
Fundamentally however not much has changed for Poland. The ‘negative’ domestic factors cited above have more to do with a change in narrative to fit the flow and positioning story, rather than a fundamental negative shift causing the zloty depreciation.
We recommend ‘fading’ the negative narrative around Poland that is currently percolating. Therefore, we view the current position squeeze as providing attractive levels to go long PLN. We believe once the position clearing is complete, which we are likely close to, PLN appreciation will resume as the focus turns to the positive fundamentals – a repeat of the post-downgrade zloty appreciation through February and March.”
Key Quotes
“But we’ve heard it all before – in January. In reality, this move lower in PLN has more to do with position clearing of PLN longs that built up over the past 2 months, and was exacerbated by the favourable external environment for the high yielders – this is likely the reason behind the bond redemptions we saw earlier in the week, as there is increased incentive to allocate capital to the high yielders given the benign external backdrop and dollar weakness.
Fundamentally however not much has changed for Poland. The ‘negative’ domestic factors cited above have more to do with a change in narrative to fit the flow and positioning story, rather than a fundamental negative shift causing the zloty depreciation.
We recommend ‘fading’ the negative narrative around Poland that is currently percolating. Therefore, we view the current position squeeze as providing attractive levels to go long PLN. We believe once the position clearing is complete, which we are likely close to, PLN appreciation will resume as the focus turns to the positive fundamentals – a repeat of the post-downgrade zloty appreciation through February and March.”