From: Daniel Sabba
To: "jeevacation@gmail.com" <jeevacation@gmail.com>
Subject: Fw: Gautam:EMEA FX Chartpack: high yielders vs. low yielders divergence [I]
Sent: Thursday, September 10, 2015 2:48:19 AM

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Classification: For Internal Use Only

Thought provoking charts.

From: Isin Sumengen-Ziel (DEUTSCHE BANK AG, LO) Sent: Wednesday, September 09, 2015 10:09 AM Subject: Gautam:EMEA FX Chartpack: high yielders vs. low yielders divergence

Given the volatile price action in the EMEA high betas (TRY, RUB, ZAR), the below charts may be informative:

1) Stretchometer: Price action is certainty stretched (on the weaker side) across the board, but especially in MYR and BRL. TRY ZAR RUB price action is also stretched, but not as much as before the rally over the past two days.

The image is a grey, noisy image with two diagonal lines crossing in the center. It is not a chart and contains no meaningful data to extract.

Looking specifically at USDTRY, price action is now stretched to the extent we saw earlier this year and more importantly at the start of 2014 (when the CBT undertook an emergency rate hike).

The image appears to be a visual pattern and not a chart. The pattern is gray and crossed by two diagonal lines.

The stretchometer for USDZAR is at 5-yr highs, but has retraced somewhat in the last 2 days (in line with the risk-on appreciation move observed across the EMEA high-yielders).

The image appears to be a visual representation of data or patterns, divided into sections by diagonal lines forming an "X" shape. The upper two sections display a more scattered pattern, while the lower section exhibits a different, possibly more structured, appearance.

USDRUB price action is also stretched, but we are still far below the 'stretch' levels we have seen in the recent past.

The image shows a pattern divided by two diagonal lines forming an 'X' shape. The upper part has a finer, more scattered pattern, while the lower part appears more ordered.

## 2) Financial fair value (based on a regression of spot on S&P, VIX, Crude, CRB, US 10y, DXY, carry):

According to our short term 'financial fair value' metric, EM FX is cheap almost across the board, with ZAR being the the most undervalued currency. TRY is also cheap, while RUB less so. However, these results should be taken with a pinch of salt, as the short-term valuation metric provides a better picture when currencies are trading within relatively tight ranges, rather than trending strongly and breaking new ground (as is the case currently for many EM currencies) due to domestic factors/factors not captured by the model.

Financial fair value (USD crosses):

The image is a shaded grey box with two diagonal lines crossing at the center. It's difficult to discern any specific data or information from the image in its current state.

As the charts below show, the extent of undervaluation (i.e. the magnitude of the model residual) is at 1y extremes for TRY and ZAR, but not for RUB.

USDTRY:

## 2) Financial fair value (based on a regression of spot on S&P, VIX, Crude, CRB, US 10y, DXY, carry): (cont.)

- Image is a placeholder/blank (gray box with diagonal X across it).
- Context label: "USDZAR".
- No chart, axes, legend, or data visible — nothing to extract.

USDZAR:

EFTA_R1_01609454

EFTA02489143

## 2) Financial fair value (based on a regression of spot on S&P, VIX, Crude, CRB, US 10y, DXY, carry): (cont.)

The image shows a gray, textured square with an "X" formed by intersecting lines. The lower section of the square, below the X, has a more uniform, less textured appearance compared to the upper sections.

USDRUB:

## 2) Financial fair value (based on a regression of spot on S&P, VIX, Crude, CRB, US 10y, DXY, carry): (cont.)

The image is a chart, but it is too blurry to read the data. The lines on the chart form an "X" shape, dividing the chart into four sections.

Mother point to highlight from the financial fair value metric, other than the cheapness of TRY and ZAR in particular, is the resilience of Central Europe (HUF. CZK, PLN, RON). We have been highlighting our bullish bias on the region (HUF and PLN in particular), and the financial fair value metric corroborates the fact that these currencies have been mostly immune to the recent sell-off in EM FX. They have the best performing EM currencies (vs USD) since the yuan deval. Over this period, there has certainly been differentiation within EMEA — weakening bias in the high yielders TRY RUB ZAR and resilience in Central Europe fx.

This differentiation is also evident in the chart below, which indicates that the average correlation between the EMEA fx currencies (USD crosses) has come down sharply in the past few months.

## 2) Financial fair value (based on a regression of spot on S&P, VIX, Crude, CRB, US 10y, DXY, carry): (cont.)

The image shows a pattern divided into four triangular regions by two intersecting diagonal lines. The upper two triangular regions contain a consistent, intricate, small-scale pattern. The lower two triangular regions show a distinct layered or stepped pattern.

Best,

Gautam

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[x]

Gautam Kalani, Ph.D
Economist/Strategist

Deutsche Bank AG, Filiale London
Emerging Markets Research
Winchester House. 1 Great Winchester Street. EC2N 2DB London. United Kingdom
Tel..44(20)754-57066
Email <u>gautam.kalani@db.com</u>

This e-mail may contain confidential and/or privileged information. If you are not the intended recipient (or have received this e-mail in error) please notify the sender immediately and delete this e-mail. Any unauthorized copying, disclosure or distribution of the material in this e-mail is strictly forbidden.

## 2) Financial fair value (based on a regression of spot on S&P, VIX, Crude, CRB, US 10y, DXY, carry): (cont.)

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