Check out the key picks for this week by SaxoStrats team

FX FOCUS – Turkish Lira / Russian Ruble

  • Turkey was one of the key focus for markets last week with emerging markets feeling contagion. USD/TRY experiencing extreme volatility and with very poor liquidity.
  • Whilst fear continues to pervade on Turkish Lira it can be expected that downside pressure on emerging markets will continue, particularly as tension between U.S. and other economics (Russia and China) has yet to subside.
  • TRADE YOUR VIEW WITH SAXO – USDTRY and USDRUB, spot and options

FX FOCUS – RMB and China data flow

  • Last Tuesday’s data releases for July demonstrated easing steps taken so far have yet to make an impact on the Chinese economy.
  • Major indicators of activity all weakened, with industrial value-added, fixed-asset investment and retail sales all missing expectations. Infrastructure FAI contracted 5% YoY, with investment in electricity, gas and water production facilities leading the fall.
  • So it is fair to say that for the easing measures implemented so far effects have been confined to the interbank lending market and the bond market but have not fed through to increasing credit growth in the economy.
  • RMB is likely to remain in focus particularly as pricing remains in close proximity to 7.00 and with further easing policy measures possibly to be implemented
  • TRADE YOUR VIEW WITH SAXO – USDCNH spot and options

STOCK FOCUS – Emerging Markets

  • Warren Buffett once said that as an investor, it is wise to be “fearful when others are greedy and greedy when others are fearful.”
  • Going back the last 5 years US stocks have outperformed, EM equities are up 29% in USD compared to US equities up 89% in the same period. A stronger USD, higher US interest rates, weaker commodity prices, and worsening current accounts have all created plethora of headwinds for EM countries and changed the narrative to being negative.
  • EM equities are now the cheapest relative to US equities since 2015. Technically this represents a good starting point for increasing exposure to EM equities if historical relationships replay themselves.
  • If we turn to fundamentals the S&P 500 trades at 12-month trailing EV/EBITDA of 13.5 compared to 8.7 for EM.
  • The relative valuation is now attractive enough that there is limited downside risk from valuation.
  • TRADE YOUR VIEW WITH SAXO iShares MSCI Emerging Markets Indx (ETF) – EEM [EEM:arcx shares and options]

STOCK FOCUS – European Banks and Turkey

  • According to the Bank of International Settlements there were foreign bank claims on Turkey worth $223.3 billion, with Spanish and French banks holding the largest claims worth $80.9bn and $35.1bn respectively.
  • When we look at performance among European banks, both Spanish and French banks have incurred steep losses in the past six weeks, and are only surpassed in this area by Italian banks.
  • However the Spanish and French claims on Turkey are not large enough to materially eat away capital; furthermore, the European financial system and the Markit iTraxx Europe Subordinated Financial Index (measuring credit quality among European banks on their subordinated debt) still trades at historically low levels, not signaling widespread panic.
  • European banks may soon be bought against European equities as a mean-reversion play
  • BBVA (owns nearly half of Garanti Bank), UniCredit (a major shareholder in Yapi Kredi) and ING (which has a local banking unit) and BNP Paribas (owner of TEB Bank)
  • TRADE YOUR VIEW WITH SAXO – BBVA [BBVA:xmce], UNI [UCG:xmil], ING [ING:xams], BNPP [BNP:xpar]

Weekly Most Traded A-shares*

Stock CodeStock NameSaxo CodeAverage Daily
Value Traded
RMB (9-15 Aug)
000063 CH EquityZTE CORP-A000063:xsec3,558,176,000.00
601318 CH EquityPING AN INSURA-A601318:xssc2,795,559,800.00
600519 CH EquityKWEICHOW MOUTA-A600519:xssc2,030,567,200.00
000858 CH EquityWULIANGYE YIBI-A000858:xsec1,744,165,600.00
000977 CH EquityINSPUR ELECTRO-A000977:xsec1,738,098,200.00
000725 CH EquityBOE TECHNOLOGY-A000725:xsec1,665,788,800.00
000002 CH EquityCHINA VANKE CO-A000002:xsec1,616,081,800.00
600536 CH EquityCHINA NATIONAL-A600536:xssc1,600,707,400.00
000651 CH EquityGREE ELECTRIC-A000651:xsec1,568,843,600.00
600309 CH EquityWANHUA CHEMIC-A600309:xssc1,556,822,000.00

* Source: Bloomberg