Societe Generale Emerging Weekly

11 December 2009
Emerging Markets
Important Notice: The circumstances in which this publication has been
produced are such that it is not appropriate to characterise it as independent Weekly
investment research as referred to in European MIF directive and that it should be
treated as a marketing material even if it contains a research recommendation www.sgresearch.socgen.com
Emerging Weekly
CIS 2010 Outlook
Best Wishes for 2010! Kazakh industrial production has rebounded
thanks to oil output
The next weekly will be published on 8 Jan 2010
25 % y/y 3ma
Q Editorial oil production
Total
20
The oil price is a key driver for the RUB and KZT. Appreciation
prospects are however limited for both currencies. For the RUB, 15
carry compression and less favourable current account 10

developments will weigh in the medium term. The authorities in
5
Russia and Kazakhstan will also try to prevent a strong and fast
0
appreciation of their currencies to preserve the competitiveness of
the local industry. In Ukraine, financing issues persist despite the end -5
of the economic recession. We expect the UAH to weaken -10

substantially in 2010. 2004 2005 2006 2007 2008 2009
Q FX trade summary
Source: SG Cross Asset Research, Ecowin
We recommend going short CZK/HUF with a target of 10.25. We
recommended this trade a couple of times in the past couple of
month with success. We think the price looks attractive once again.
Moreover, we believe CZK will again underperform with the easing in
Numerous risks weigh on Ukraine’s fiscal deficit
risk aversion. The quant team also sees value in this trade (see latest
12
FX Quantsight). As a short-term trading idea, we also recommend % of GDP
going short EUR/HUF, to position for an easing in risk aversion in the general government deficit
10
inc. Naftogaz and banks recapitalisation costs
coming sessions that will bring EUR/HUF back down to 265.
Q How to play 2010 themes in CEEMEA local rates 8
(1) Differentiation: Receive PLN 5y IRS vs RUB 5y CCS. (2) Different

monetary cycles: Receive ZAR vs Brazil DI short-rates. (3) Delayed 6
flattening: Enter a PLN 2s5s flattener around +80bp during H1 2010.

4
Q FX technical analysis
BRL/ILS should break below the late October low of 2.13 and dip to 2
the 1.99/2.03 support area. EUR/CZK The MT declining resistance
line, which comes at 26.42 this week (-0.036/week), should cap the 0
upside and force EUR/CZK to return to the mid-September low of 2008 2009 2010
24.95, with a step at 25.35. Source: SG Cross Asset Research, IMF
Contents View and Trade Summary EM Research Team

View and Trade Summary 2 03/12/09 10/12/09 Coming week Coming month Gaëlle Blanchard (44) 20 7676 7439
Weekly Calendar 4 EUR/PLN 4.0961 4.154 Ô Ô Murat Toprak (44) 20 7676 7491
Central Bank Watch 7 EUR/HUF 269.82 273.63 Ô Ô Esther Law (44) 20 7676 7396
Editorial 8 EUR/CZK 25.834 25.766 Î Ò Jaroslaw Janecki (48) 2 2528 4162
FX Strategy 12 USD/TRY 1.4866 1.5004 Î Ô Jan Vejmelek (420) 2 2200 8568
Technical Analysis 16 USD/RUB 29.1646 30.425 Î Ô Anne-Francoise Blüher (420) 2 2200 8524
FX Quantsight 17 USD/BRL 1.7103 1.7707 Ô Î Jiri Skop (420) 222 008 569
Fixed Income Strategy 18 USD/MXN 12.639 12.9678 Ô Ô Maxim Oreshkin (7495) 725 5637
Issuance Calendar 20 PLN 5Y 5.56 5.61 Ô Ô Patrick Bennett (852) 21 66 57 97
Rates Quantsight 21 HUF 5Y 6.86 7.035 Ô Î Greg Anderson +1 212 278 5715
CNB watch 22 CZK 5Y 3.08 2.99 Î Î
Economic Data Preview 23
Macro Commodities Forex Rates Equity Credit Derivatives

Visit our http:\\www.sgresearch.socgen.com site for additional information and our updated disclosures. Please see disclaimer at the end of this document
Emerging Markets Weekly
FX Views and Recommendations

Trade recommendations
Go short CZK/HUF. We recommend going short CZK/HUF with a target of 10.25, stop loss 10.76. We recommended
this trade a couple of times in the past couple of month with success. We think the price looks attractive once again.
Moreover, we believe CZK will again underperform with the easing in risk aversion. The quant team also sees value in
this trade (see latest FX Quantsight).
Go short EUR/HUF. The HUF has suffered during the past week with the escalating concerns on Greek debt, as the
level of debt is also an issue in Hungary. As a short-term trading idea, we recommend going short EUR/HUF, to position
for an easing in risk aversion in the coming sessions that will bring EUR/HUF back down to 265.
Asian trades. We keep our short EUR/KRW position but again tighten the stop (to 1,750 from 1,780). This trade
continues to reflect our view that Asian currencies in general and the KRW in particular should correct some of the last
years’ underperformance against G7 currencies (ex USD). Our defensive basket trade is long strong current account-
surplus currencies against currencies where external balances are ether already negative or pressured; long SGD and
TWD against short PHP and INR has moved sideways this week. The trade is currently losing 0.45%, target is a 2.5%
profit, stop loss -1.0%.
FX spot strategies:
Cross Position Date Entry Target Stop Current P/L week * P/L total
New positions this week
CZK/HUF Long 11-Dec 10.59 10.25 10.76
EUR/HUF Short 11-Dec 273 265 278
Old positions
MXN/CLP Long 26-Nov 38.00 42.00 36.00 38.29 -3.41% 0.76%
KRW/SGD Long 26-Nov 0.12 0.1290 0.1155 0.12 -0.33% -0.67%
KRW/CLP Long 26-Nov 0.4257 0.4500 0.4135 0.4266 -1.95% 0.21%
USD/PEN Short 12-Nov 2.8725 2.7500 2.9310 2.8765 -0.09% -0.14%
TRY/ZAR Long 11-Nov 4.98 5.30 4.82 5.03 1.03% 1.00%
EUR/KRW Short 28-Oct 1760 1665 1850 1716 1.32% 2.50%
EUR/PLN Short 9-Oct 4.24 4.00 4.36 4.15 -1.32% 2.12%
USD/ILS Short 25-Sep 3.77 3.62 3.84 3.77 -0.13% 0.00%
Positions closed
Total P/L 0.72%

* since last publication
FX options strategies:
Cross Position Structure Date Spot Entry ATMF Vol Expiry Cost Valuation P/L week * P/L total
Entry (close)
New positions this week
Old positions
USD/MXN Short vol swap 23-Oct 12.89 15.5 25-Jan-10 0.00% 1.98% -0.54% 1.98%
implied
USD/TRY Long implied vol swap 23-Oct 1.4648 14.3 25-Jan-10 0.00% -2.53% -0.10% -2.53%
USD/BRL ** Short vol double no 19-Nov 1.7268 17.9 20-May-10 2.50% 2.61% -0.05% 0.11%
touch
Positions closed
USD/BRL ** Short vol double no 30-Oct 1.7248 19.2 19-Nov-09 3.33% 8.02% 1.95% 4.69%
touch
USD/MXN Short risk 9-Oct 13.26 14.7 9-Nov-09 0.00% 0.00% 0.09% 0.00%
reversal
Total P/L 4.14%

* since last publication
** For P&L purposes, assume a notional that is 10% of a vanilla notional. A 33.3% price of a DNT is is therefore 3.33% and payoff is 10% instead of 100%.
2 11 December 2009
FI Views and Recommendations

Trade recommendations
Czech Republic: Take profit on CZK CZK 1y1y fwd receiver. On 13 November we recommended receiving CZK 1y1y
at 2.70% with a target of 2.40% and a stop loss at 2.85%. CZK 1y1y declined and trades currently at 2.47%. In a surprise
to the market, at its last meeting on 5 November the CNB voted by 4:3 to keep rates unchanged. The short end of the
yield curve jumped up significantly in response. CNB board member Zamrazilová, who voted for no change last time,
admitted that the central bank may have room to lower interest rates if the inflation outlook remains benign and a cut
would help the economy recover from a recession. But, as she stressed, she was undecided. Unfortunately, the
economic indicators out this week (GDP and CPI) were no help in figuring out whether or not the CNB will cut by another
25bp next week. In addition, parliament’s decision to approve additional spending for 2010, which made the budget less
restrictive than previously expected, could be a new argument for the CNB board members who didn’t cut the last time
to keep rates stable. To sum up, the CNB’s decision remains a very tight call. The market is pricing in a 50% chance of a
25bp cut. As a result, we prefer to take profit on current levels.
South Africa: Maintain 1y1y forward receiver. This trade has held up relatively well despite rand weakness. We
maintain it as it plays well with our theme – monetary cycles favour CEEMEA rates over Asia/LatAm peers (see Fixed
Income Strategy page). We still think cuts are possible in South Africa and carry is attractive. Target: 7.75%.
Hungary: Hold 13/D. This position has returned some gains on recent currency weakness. Maintain this position as
technicals are still positive for Hungarian local bonds into early 2010.
Poland: Maintain PLN-EUR 5y5y forward. We do not expect any surprise on the convergence front for Poland (and
also other CE3) during H1 2010. However, we favour Poland from a fundamental perspective and see any widening of
the PLN-EUR 5y5y forward spread above 130bp as an opportunity to increase the position (see CEEMEA local rates
strategy in FI Outlook 2010)
Position Date Entry Unit Target Stop Current P/L week P/L total Est. 3m
(bp)* (bp) carry (bp)
Existing positions
PLN - EUR 5y5y forward 30 Mar 160 bp 60 130 128 -1 32 -1
Receive ZAR 1y1y forward 21 Jul 8.15 % 7.75 8.40 8.07 -10 8 20
Receive ZAR 2s5s10s PCA barbell Ratio:
15 Sep -50 bp -70 -40 -60 -4 10 3
0.62:2:0.47
Pay HUF 3x6 FRA^ 18 Sep 6.35 % 7.00 6.10 6.30 -2 -5 --
Switch TURKGB11 8/14 into R201 16 Oct -56 bp -180 -160 -172 0 116 --
EUR 2s10s flattener vs PLN 2s10s

17 Sep -99 bp -65 -85 -74 -1 25 7
steepener box
Buy HGB6.75 2/13 (13/D) 6 Nov 7.08 % 6.70 7.25 7.00 21 8 4
Receive PLN 3s5s7s standard barbell 12 Nov 25 bp 10 30 26 0 -1 0

Positions closed Entry Unit Target Stop Closed level Closed date P/L total
Entry date
(bp)
Receive CZK 1y1y forward 23 Jul 2.81 % 2.65 2.90 2.90 17 Aug -9 22
Sell PLN 2-5-10yr swap Barbell 16 Apr 35 bp 18 45 50 18 Aug -15 -2
CZK 5s10s steepener 25 Jun 48 bp 60 40 40 18 Aug -8 --
PLN rec 3x6 vs pay 6x9 15 May 0.0 bp -10 5 -10.0 25 Aug 10 --
HUF 2s5s flattener 20 Mar -14 bp -40 -7 -7 31 Aug -8 8
Buy POLGB5.75 3/10 vs Eonia 6 Apr 280 bp 50 300 45 16 Sep 235 --
Buy: DS1019 vs Sell: DS1015 in ASW (risk
30 Jul 44.5 bp 20 54 34 22 Sep 11 0
neutral)
RUB 6m vs 3y NDF flattener 17 Sep 126 bp 50 170 62 8 Oct 64 30
Receive CZK 3x6 FRA 2 Sep 2.03 % 1.75 2.15 1.78 8 Oct 25 --
Pay CZK 5y versus PLN 5y IRS Ratio 1:0.55 9 Oct -20 bp -40 -10 -10 20 Oct -10 0
Buy: PS0414 vs Sell DS1013 & DS1015 21 Apr 7.2 bp -4 11 3.6 12-Nov 4 --
(DV01 neutral)
Receive CZK 1y1y forward 12 Nov 2.70 % 2.40 2.85 2.47 11-Dec 23 14
* since last publication ** P/L calculated without carry ^ expires on 18 Dec 09

Source: SG Cross Asset Research, Bloomberg, Reuters
11 December 2009 3
Events and data

EMEA
During the week Period Previous SG Forecast Consensus
Ukraine Merchandise Trade Balance YTD OCT -4.09B na na
Industrial Production (YoY) NOV -6.2% na 7.4%
Retail Trade YTD (YoY) NOV -16.3 na na
Russia Industrial Production Real MoM NOV 0.8% na -1.1%
Industrial Production (YoY) NOV -11.2% na -1.0%
Producer Prices (YoY) NOV -1.8% na 5.6%
Unemployment Rate (%) NOV 7.7% na 7.8%
Real Wages (YoY) NOV -4.5% na -3.0%
Investment In Productive Capac NOV -17.9% na -14.5%
Retail Sales (Real) (YoY) NOV -8.5% na -6.3%
Disposable Income NOV 3.9% na 5.2%
Israel Inflation Forecast DEC 2.5% na na
Money Supply (YoY) NOV 55.0% na na
Monday 14-Dec-2009 (GMT) Period Previous SG Forecast Consensus

Israel Current Account (USD) 3Q 2079M na na
8:00 Czech Republic Industrial Output (YoY) OCT F -7.30% -7.30% na
8:00 Construction Output (YoY) OCT 3.60% 2.00% na
8:00 Retail Sales (YoY) OCT -7.60% -6.20% -4.6%
13:00 Poland Money Supply - M3 (Level) NOV 710906 na 705368
Tuesday 15-Dec-2009 (GMT) Period Previous SG Forecast Consensus

South Africa National Holiday na
8:00 Czech Republic PPI (Industrial) (MoM) NOV -0.2% -0.3% 0.0%
8:00 PPI (Industrial) (YoY) NOV -4.6% -3.0% -2.8%
8:00 Export Price Index (YoY) OCT -4.3% na na
8:00 Import Price Index (YoY) OCT -9.3% na na
8:00 Hungary Industrial Output (YoY) OCT F -10.8% na na
8:00 Industrial Output (MoM) OCT F 1.8% na na
8:00 Turkey Unemployment Rate SEP 13.4% na na
9:30 South Africa CPI (all items) (MoM) NOV 0.0% na 0.1%
9:30 CPI (all items) (YoY) NOV 5.9% na 5.9%
13:00 Poland CPI (MoM) NOV 0.1% na 0.4%
13:00 CPI (YoY) NOV 3.1% 3.2% 3.4%
14:00 Budget Level (Monthly Total) NOV -2570.7 na na
14:00 Budget Perf. (Year to date) NOV 88.4% na na
14:00 Budget Level (Year to date) NOV -24041.M na na
16:30 Israel Consumer Prices (MoM) NOV 0.2% na 0.2%
16:30 Consumer Prices (YoY) NOV 2.9% na 3.8%
Wednesday 16-Dec-2009 (GMT) Period Previous SG Forecast Consensus

Czech Republic Repo Rate Announcement 1.25% 1.00% 1.25%
8:00 Hungary Avg Gross Wages (YoY) OCT 0.7% na 0.8%
8:00 Unemployment Rate NOV 10.4% na 10.5%
8:00 Turkey Consumer Confidence NOV 80.5 na na
13:00 Poland Avg Gross Wages (MoM) NOV 0.9% na 3.4%
13:00 Avg Gross Wages (YoY) NOV 2.0% 1.5% 3.0%
13:00 Employment (MoM) NOV 0.0% na -0.2%
13:00 Employment (YoY) NOV -2.4% -2.3% -2.4%
Thursday 17-Dec-2009 (GMT) Period Previous SG Forecast Consensus

Russia Gold & Forex Reserve USD na na na
9:30 South Africa PPI (MoM) NOV -0.1% na 0.2%
9:30 PPI (YoY) NOV -3.3% na -1.8%
13:00 Poland Producer Prices (MoM) NOV 0.3% na 0.2%
13:00 Producer Prices (YoY) NOV 2.0% 2.0% 2.4%
13:00 Sold Industrial Output (MoM) NOV 1.9% na -5.6%
13:00 Sold Industrial Output (YoY) NOV -1.2% 7.4% 6.6%
Publication of minutes na
17:00 Turkey Base Rate 6.50% 6.25% na
4 11 December 2009
Latin America
Argentina Budget Balance NOV 702.7M na na
Brazil CAGED Formal Job Creation NOV 230956 na na

13:00 Brazil Trade Balance (FOB) - Weekly $376M na na
20:30 Mexico Industrial Production (YoY) OCT -5.7% na -3.5%

11:00 Brazil Retail Sales (YoY) OCT 5.00% na na
11:00 Retail Sales (MoM) OCT 0.30% na na
11:30 Chile Copper Exports NOV $2,482.30 na na
Argentina Consumer Confidence DEC 40.49 na na
21:00 Chile Nominal Overnight Rate Target 0.50% 0.50% 0.50%

10:00 Brazil FGV CPI IPC-S 0.47% na na

7:00 Brazil FIPE CPI - Weekly 0.20% na na
10:30 COPOM Monetary Policy Meeting Minutes na na na
12:00 FGV Inflation IGP-10 (MoM) DEC 0.07% na na
15:00 Long Term Rate - TJLP 6.00% na na
19:00 Argentina Unemployment Rate Total 3Q F 9.10% na na
22:00 Brazil Tax Collections NOV 68839M na na
Friday 18-Dec-2009 (GMT) Period Previous SG Forecast Consensus

Colombia Overnight Lending Rate 3.50% 3.50% 3.50%
Industrial Production (YoY) OCT -3.80% na -3.10%
Retail Sales (YoY) OCT -7.30% na -5.00%
Publication of Inflation Report
11:00 Brazil Unemployment Rate NOV 7.50% na na
12:30 Current Account - Monthly NOV -$2911M na na
12:30 Foreign Direct Investment NOV $1563M na na
19:00 Argentina Quarterly GDP-Constant Total 3Q -0.80% na na
19:00 Industrial Production YoY NSA NOV 1.50% na na
19:00 Industrial Prod. s.a. (MoM) NOV 0.20% na na
11 December 2009 5
ASIA
China New Yuan Loans NOV 253.0B na 250.0B
Money Supply - M0 (YoY) NOV 14.10% na na
Money Supply - M1 (YoY) NOV 32.00% na na
Money Supply - M2 (YoY) NOV 29.40% na 29.00%
Actual FDI YTD YoY NOV -12.60% na -9.10%
South Korea Export Price Index (YoY) NOV -16.50% na na
Export Price Index (MoM) NOV -3.00% na na
Import Price Index (YoY) NOV -15.30% na na
Import Price Index (MoM) NOV -1.10% na na
Indonesia Money Supply - M1 (YoY) OCT 2.20% na na
Wholesale Price Index (YoY) OCT na na na
Money Supply - M2 (YoY) OCT 12.20% na na
Total Local Auto Sales NOV 52241 na na
Total Motorcycle Sales NOV 613979 na na
Thailand Total Car Sales NOV 53271 na na
South Korea Department Store Sales YoY NOV 11.40% na na
Discount Store Sales YoY NOV 4.50% na na

No planned event

5:00 Singapore Retail Sales (YoY) OCT -11.80% na na
5:00 Retail Sales (MoM) sa OCT -7.90% na -1.4%

4:30 South Korea Unemployment Rate (SA) NOV 3.40% na na

5:00 Singapore Electronic Exports (YoY) NOV -13.80% na na
5:00 Non-oil Domestic Exports (YoY) NOV -6.10% na na
5:00 Non-oil Domestic Exp SA (MoM) NOV -13.00% na na
Philippines MPC meeting 4.00% 4.00% 4.00%
Friday 18-Dec-2009 (GMT) Period Previous SG Forecast Consensus

Indonesia National Holiday
Malaysia National Holiday
7:30 Thailand Foreign Reserves na na na
7:30 Forward Contracts na na na
Source: SG Cross Asset Research, Komercni banka, Bloomberg
6 11 December 2009
Central bank watch

What is priced in (bp
Rating^ Outlook Country Next Meeting Last move (bp) Current Rate (%) SG View
over 3m)
A- Stable Poland 23 Dec 09 unchanged 3.50 No change in the coming months 2
BBB- Negative Hungary 21 Dec 09 -50 6.50 We expect 50bp of rate cuts by year end -95
A Stable Czech Rep. 16 Dec 09 unchanged 1.25 50% probability of a cut at next meeting -13
BB+ Negative Romania 05 Jan 10 unchanged 8.00 No rate cuts before next year NA
BBB Negative Russia NA -50 9.00 We expect there to be a total of 50bp cuts left NA
BB- Stable Turkey 17 Dec 09 -25 6.50 We expect a 25bp cut by year end 0
Key rate bottoming at 6.50% in the next 3-6

BBB+ Negative South Africa 26 Jan 10 unchanged 7.00 51
months
A Stable Israel 28 Dec 09 25 1.00 We expect a 100bp hike in H1 2010 -11
First hike of 25bp in June, will tighten by

BBB- Stable Brazil 27 Jan 10 unchanged 8.75 50
150bp in 2010
First hike of 50bp in Sep-10; total tightening

A+ Stable Chile 15 Dec 09 unchanged 0.50 NA
of 125bp by end of 2010.
First hike of 25bp in June, we expect

BBB- Stable Colombia 18 Dec 09 -50 3.50 NA
25bp/mo thereafter througout 2010
First hike of 25bp in August, we expect

BBB+ Negative Mexico 15 Jan 10 unchanged 4.50 16
5.75% base rate by end 2010
Rates will remain on hold into 2010. A hike in

A+ Stable China NA -27 5.31 0
the RRR is likley to be the first tightening
BI left rates on-hold on Dec3. The message

from the central bank is that a softer inflation
BB- Stable Indonesia NA unchanged 6.50 0
outlook (5.5% in 2010) will mean delaying
any tightening
Rates expected on-hold until 2010, BNM says

A- Stable Malaysia 26 Jan 10 unchanged 2.00 0
price pressures are benign
Rates remain on-hold. Comments from

Deputy Governor following latest meeting
BB- Stable Philippines 17 Dec 09 unchanged 4.00 0
were dovish saying BSP, "has a neutral
stance with an easing bias."
BoK left rates on-hold on Dec 10, but the
statement clearly laid the groundwork for
A Stable South Korea 08 Jan 10 unchanged 2.00 35
tightening in Q1. The January meeting will be
a close call.
CBC indicated that policy will depend on
AA- Negative Taiwan 24 Dec 09 unchanged 1.25 consumer prices, which are expected to stay 0
subdued until at least year-end
RBI statement was hawkish, first hike is
BBB- Negative India 29 Jan 09 unchanged 4.75 35
expected in Q1 2010
Interest rates to remain on-hold until mid

BBB+ Negative Thailand 13 Jan 09 unchanged 1.25 20
2010
Source: SG Cross Asset Research, KB, Bloomberg, Reuters (as at 10 Dec 09 close.). ^S&P ratings are used
80 8
60 7
40
FRA - premium (bp)
Key Policy rates (%)
6
20
0 5
-20 4
-40 3
-60
2
-80
-100 1
-120 0
PLN HUF CZK ZAR ILS TRY
3m 1m fw d* (LHS) 3m 2m fw d* (LHS) 3m 3m fw d* (LHS) Current base rate (RHS)
11 December 2009 7
Emerging Weekly
market trends remain negative for household consumption

CIS 2010 Outlook (although real retail sales recently recorded monthly
increases). In this context, we expect the bank to lower the
The oil price is a key driver for the RUB and KZT. refinancing rate by another 50bp to 8.50% before the end
Appreciation prospects are however limited for both of Q109. The carry compression will thus continue to
currencies. For the RUB, carry compression and less reduce the attractiveness of the RUB. However, the
favourable current account developments will weigh in the window of opportunity to cut is narrowing. Favourable
medium term. The authorities in Russia and Kazakhstan trends in food prices have already started to reverse and
will also try to prevent a strong and fast appreciation of the liquidity provided by budget spending has already
their currencies to preserve the competitiveness of the triggered a rebound in the money supply.
local industry.
In Ukraine, financing issues persist despite the end of the Graph 2. Manufacturing PMI and output
economic recession. Numerous risks weigh on the fiscal
deficit and the restoration of relationships with the IMF will 15 y/y, 3ma 60
take some time. We expect the UAH to weaken 10
substantially in 2010. 55
5
50
0
RUB: limited room for appreciation
-5 45
Rising REER adds to manufacturing sector’s woes. The
rebound in manufacturing activity since the summer - -10
Manufacturing output 40
following the sharp downturn in Q408 and Q109 – is -15 PMI
already running out of steam. The improvement in output 35
reversed in October, following the PMI’s drop below 50. -20
The sector is still suffering from the tight credit conditions, -25 30
and the strengthening of the rouble (from close to 41 vs Jan-06 Oct-06 Jul-07 Apr-08 Jan-09 Oct-09
basket in February to a low of 35.07 in November) is
undermining its price competitiveness. Although the REER
has not yet recovered to its pre-crisis level, the economy is Sources: SG Cross Asset Research, Ecowin, Reuters
not in good enough shape to absorb further significant
increases. There is a debate ongoing over whether the
Graph 3. Stabilising capital outflows
authorities should fight the stronger currency to support
domestic producers, or let it rise to force them to improve bn USD
their competitiveness. In any case, the central bank is likely
40
to continue intervening to smooth the RUB’s volatility (on
the upside as well as on the downside), before the switch 10
to free float and inflation targeting scheduled for 2012.
-20
Graph 1. Rising REER -50
135 2005=100 -80

130
-110
125
-140
120 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09
115
Sources: SG Cross Asset Research, Central Bank of Russia
110
105 Less favourable current account developments ahead

The RUB has been supported by the recovery in oil prices
100
in 2009 that has triggered a comfortable trade surplus.
Jan- Jun- Nov- Apr- Sep- Feb- Jul- Dec- May- Oct-
06 06 06 07 07 08 08 08 09 09
However, once the recovery in domestic demand gathers
momentum, this will translate into higher imports. The
Sources: SG Cross Asset Research, Ecowin, BIS
stronger the recovery, the higher the oil price needed to
balance the current account. On the capital flows side, the
situation has started to reverse. Outflows reached $53bn
Lower interest rates reduce RUB’s attractiveness. The between January and October, but there have been inflows
unexpectedly fast slowdown in inflation has allowed the in November and the authorities have voiced concern
central bank to cut its refinancing rate by 400bp since about the resumption of large hot money inflows, as
December 2008 to support the economy. The happened in 2007. Their potentially destabilising impact on
manufacturing sector remains weak however, and labour the domestic financial market and real economy has
8 11 December 2009
triggered some discussion about capital controls. We do reduction has been pivotal in the stabilisation of the FX
not expect such measures to be implemented. The Russian market and will clearly be a positive factor for UAH.
authorities have outlined less crude measures such as However, the key variable for FX will be fiscal policy in the
increasing reserve requirements, caps on banks’ foreign coming months. Although Ukraine’s public debt level is
currency positions and taxes on profits generated by relatively low, any widening of the fiscal deficit would have
selected transactions. Meanwhile, FDI inflows are likely to very negative implications for the UAH given the absence
remain low unless the business environment becomes of capital inflows. The IMF programme has been damaged
friendlier for foreign investors. by President Yushchenko’s decision to increase the
minimum wage by 33%. The Fund did not disburse the
Forecasts
fourth tranche of $3.8bn in mid-November. The return of
Mar 10 Jun 10 Sep 10 Dec 10 IMF money is crucial but unlikely before the presidential
Basket/RUB 35.10 35.00 35.50 35.80
election. The difficulties encountered by Naftogaz are
another potential source of risk for the fiscal deficit. The
USD/RUB 28.20 27.80 28.50 29.50 gas company is experiencing difficulties being paid by its
EUR/RUB 43.50 43.80 44.00 43.50 clients and is struggling to pay Gazprom, which is fuelling
tensions with Russia. Finally, further capital injection into
Source: SG Cross Asset Research
the banking sector may be needed given the magnitude of
NPLs, which represent 30% of total loans. The IMF expects
UAH: to weaken substantially in 2010 the deficit to be contained at 3.0-4.0% of GDP in 2010 after
6.0%, but the risk of a wide slippage persists. Moreover,
Very gradual economic recovery. Signs of an economic the temptation to monetise the fiscal deficit exists. The
recovery have emerged and GDP will grow again in 2010, materialisation of such a risk would be very negative for
in our view. Activity in the industrial sector is improving the currency.
thanks to higher steel prices and a rebound in external
demand, while private consumption is set to recover in Graph 5. Current account deficit narrowed sharply thanks
2010. The government will intensify its support to to recession but capital inflows plummeted too
households with an increase in the minimum wage and
18 current account deficit
higher social transfers. The public sector will also support bn$
FDI + Portfolio flows
investment through higher infrastructure spending linked to 15
Euro 2012. Nevertheless, the recovery will be very slow as 13
access to credit for the corporate sector and households
10
will remain limited. Credit growth to the private sector is
very likely to remain on its downward path in the coming 8
quarters. Consumer demand will also be restrained by 5
rising unemployment and falling real wages as inflation
3
remains high (13.6% in November), albeit down from a
peak at 26.4% in mid-2008. All in all, we expect GDP to 0
grow 2.5% in 2010 after contracting by about 15% in 2009. -3
Graph 4. Credit growth one of the main obstacles to strong 2002 2003 2004 2005 2006 2007 2008 2009
economic growth
80%
y/y, %
70%
Graph 6. Numerous risks weigh on fiscal deficit
60%
12
50% % of GDP
general governm ent deficit
10
40% inc. Naftogaz and banks recapitalis ation cos ts
30% 8
20%
6
10%
Jan-02 Feb-03 Mar-04 Apr-05 May-06 Jun-07 Jul-08 Aug-09 4

2
The financing issue persists. The massive contraction

of the economy has allowed a very rapid reduction of the 0
current account deficit. After a deficit of 7.2% of GDP in 2008 2009 2010
2008, the current account will be balanced in 2009 and

should post a small deficit of 1.5% in 2010. This rapid Source: SG Cross Asset Research, IMF
11 December 2009 9
Emerging Weekly
Presidential election on 17 January. The first round of Graph 8. No revival of credit

the election will be held on 17 January with a second round
in February if needed (very likely). Two candidates are 150 % y/y
ahead in the opinion polls: current prime minister
125
Tymoshenko and Yanukovich. A Tymoshenko victory
would be a more market-friendly outcome given her 100
relationship with the IMF. She was firmly opposed to the
minimum wage increase. 75
50
Forecasts
25
Mar 10 Jun 10 Sep 10 Dec 10 loans to companies
0 loans to households
USD/UAH 8.50 9.00 9.20 9.20
-25
2002 2003 2004 2005 2006 2007 2008 2009
KZT: gradual appreciation Sources: SG Cross Asset Research, Ecowin
Recovery ahead after a mild recession. The Kazakh

economy managed to experience only a mild recession Banking sector situation remains fragile. The financial
despite the extent of the financial crisis and the crisis dried up Kazakh banks’ foreign funding, which had
vulnerability of the domestic banking sector. We expect been behind the fast credit growth of the mid-2000s. The
GDP growth of 2-3% in 2010 after -2.0% in 2009. The banks’ difficulties were amplified by the economic
recovery in oil demand and prices is the key driver of the downturn and drop in house prices that led to a sharp
economic rebound. Industrial production has recovered increase in non-performing loans (total overdue loans
since spring mainly thanks to the sharp increase in oil reached 29.2% of total loans at the beginning of
output, which reached 17% yoy on average in Q3. Outside November). The government took measures to protect
the extraction industry, the situation remains bleak. depositors and used part of the oil revenues accumulated
in the National Oil Fund to provide some financial support
Graph 7. Industrial production has rebounded thanks to oil to the banking system. It refrained however from bailing
output out banks, leading three of them to default and negotiate
debt restructuring. As the economy recovers, non-
25 performing loans will probably peak in Q1 or Q2, helping to
Total
% y/y 3ma
oil production stabilise the banking system.
20
15 Graph 9. Current account balance to return to surplus

10
bn USD, 12-m accumulation
5 10.0
0
5.0
-5
-10 0.0
2004 2005 2006 2007 2008 2009
Current account balance
-5.0
FDI
Sources: SG Cross Asset Research, Ecowin

-10.0
Credit growth has slowed markedly, which affected mainly 2002 2003 2004 2005 2006 2007 2008 2009
non-mining companies and households. A strong recovery
of credit growth is unlikely – despite the central bank’s
Sources: SG Cross Asset Research, Ecowin
400bp rate cuts to 7% since July 2008 - as the authorities
are tightening legislation to prevent a resumption of credit-
fuelled overheating in the construction and banking sector, Small strengthening bias for the KZT. The recovery in
as happened in 2004-07. Tight credit, the collapse in house oil prices will improve government finances and restore the
prices and the fall in real wages in 2008 led to much lower current account surplus. After a budget deficit of less than
growth of household consumption (from 11% yoy in Q4 4% of GDP in 2009, the government expects a deficit of
2007 to flat in Q3 2008). It is now gradually recovering 4.1% in 2010 based on the oil price averaging $50/bl.
thanks to the drop in inflation, which is restoring some Public finances are not an issue, as public debt is only
purchasing power. 10% of GDP. The current account balance should record a
small deficit in 2009, as domestic demand collapsed and
oil prices started to rebound, and the surplus could reach
10 11 December 2009
4% of GDP next year. Oil price developments are key for

the KZT, and have been supportive in the past few months.
The central bank will however prevent a significant
appreciation to preserve competitiveness and rebuild FX
reserves. The authorities have warned against foreign
speculation on the currency. After the devaluation in
February, the KZT trading band was fixed at 145-155 per
USD. USD/KZT will likely gradually trend towards 145 in
the coming months.
Forecasts
Mar 10 Jun 10 Sep 10 Dec 10
USD/KZT 147 145 145 145
gaelle.blanchard@sgcib.com
murat.toprak@sgcib.com
11 December 2009 11
Emerging Weekly
FX Strategy
EUR/PLN 1 week view Ô 1 month view Ô
The downward path in EUR/PLN was interrupted last week as risk aversion spiked higher and
EUR/USD weakened. Rising fears about Greece’s public finances particularly affected CEE
currencies. Although this issue may weigh for some time, we do not think the CEE currencies’
recovery trend is over. We expect the PLN to eventually rebound and continue strengthening
Although risk aversion on the back of relatively strong and improving economic fundamentals. The latest economic
made a comeback, we do data have confirmed the positive momentum, although tight credit conditions will lead to
not think the PLN’s moderate GDP growth compared to previous years. Data due in the coming week should
recovery trend is over support the PLN. November CPI is expected to rise to 3.4% yoy (consensus) from 3.1% in
October and wage growth is also likely to improve. However, the labour market situation
remains difficult and unemployment will continue to rise for some time, preventing a
significant rebound in wage growth. Meanwhile, industrial output should continue to
gradually improve in the wake of the rising PMI (which jumped to 52.4 in November from
48.8).
EUR/CZK 1 week view Î 1 month view Ò
GDP figures for Q309 showed the Czech economy has emerged from recession, recording
growth for the second quarter in a row. The result was in line with the flash estimate which
showed growth of 0.8% qoq. This means that the contraction of -4.7% yoy in Q209 eased to
Both Czech GDP and -4.1% yoy in Q309. However, this was mainly due to fiscal stimuli from abroad that supported
inflation have bottomed Czech exporters and producers. Inventories also contributed significantly to growth, after
but we do not expect a their unsustainable reduction in previous quarters. Recent foreign data, particularly from the
strong revival German industrial sector, suggest that the end of fiscal stimuli will bring another wave of
economic slowdown; this could show up in the Czech economy in Q409. For Q110, we
cannot rule out the risk of a qoq decline in GDP, as the economy will have to deal not only
with weaker foreign demand but also with the restrictive fiscal package. Nevertheless, this
package will be less constraining than the government wanted. The state budget draft was
approved by parliament, but with the removal of some mooted cost-saving measures. This
will lead to a wider gap, of probably 5.7%/GDP, than the 5.3% the government had targeted.
While the GDP figures were in line with the central bank’s forecast, November inflation
surprised on the upside. However, the first increase in consumer prices of 0.2% mom since
February was due solely to higher fuel, food and non-alcoholic beverage prices. These are
components the central bank cannot influence through its monetary policy. According to our
calculations, yoy adjusted inflation stayed marginally in the red in November; in a mom
comparison no increase in adjusted inflation was recorded. It is true that headline inflation is
40bp above the CNB’s current inflation prognosis. However, this leaves room for further
decreases in interest rates; we think a 25bp cut would be consistent with the data and the
CNB’s inflation forecast.
Thus, the economic indicators released this week did not solve the puzzle of the outcome of
Key event of next week is next week’s monetary policy meeting. The bank voted by 4:3 to keep rates unchanged at the
the CNB meeting: we last meeting. Board member Zamrazilová, who voted for no change last time, admitted that
expect a tight call. CZK the central bank may have room to lower interest rates if the inflation outlook remains benign
will react accordingly and a decrease would help the economy recover from a recession. But, as she stressed, she
was undecided.
Because of uncertainty surrounding next week’s CNB meeting, we would expect some
EUR/CZK reaction to the decision; the market is pricing in a 50% chance of a 25bp cut.
However, we would not expect any long-lasting impact as the interest rate differential does
not play a significant role in the exchange rate determination. EUR/CZK will be driven mainly
by global sentiment towards emerging currencies over the upcoming weeks.
EUR/RON 1 week view Î 1 month view Î
EUR/RON’s recent downward trend was interrupted this week by the spike in risk aversion
Persistent political and domestic political developments. The victory of outgoing Romanian president Basescu
uncertainties and risk in the second round of the presidential election on 6 December was somewhat of a surprise.
aversion weigh on the The opinion polls had suggested the Social-Democrat leader Geoana was leading, but only
RON by a small margin. The very close outcome (50.37% of votes for Basescu and 49.63% for
12 11 December 2009
Geoana) led the opposition to contest the result. The constitutional court will say in a few
days whether it will overturn the result. In any case, political uncertainty is not over. If
Basescu’s victory is confirmed, Romania will be back in the pre-election situation, with the
majority in parliament against the president. This will complicate the nomination of prime
minister and the formation of a government. The longer the deadlock, the longer the IMF
payment will be delayed. Broad support for the economic programme is needed but the
EUR/RON downtrend will government will most likely be a minority one and it will not be easy to pass the necessary
resume once/if the IMF measures.
programme is back on
In this context, we expect the central bank to keep its key rate unchanged again on 5
track
January, as the fate of the IMF programme will probably still be uncertain at that time.
Although the weakness of the economy, tight credit conditions and the slowdown in inflation
provide room for further rate cuts, tensions on the money market and on the RON exchange
rate will keep the NBR cautious. FX-wise, RON’s upward move has been interrupted but
downside potential is limited to 4.29-4.30 by the central bank’s interventions. The EUR/RON
downtrend will resume once/if the IMF programme is back on track.
USD/TRY 1 week view Î 1 month view Ô
The last key event of the year will be the central bank meeting on 17 December. This meeting
is important as it will seal the end of the rate cut cycle, in our view. We still see the possibility
of a final 25bp cut to 6.25% but the decision will be a close call. The minutes of the last MPC
CBRT’s decision will be a meeting made a final rate cut less certain as the wording didn’t directly mention further cuts.
close call Moreover, market perception has also changed since the release of the October industrial
production number, which showed an unexpected rise of 6.5%. It was the first positive
reading since July 2008. GDP contraction also slowed to -3.3% yoy in Q3 after -7.9%,
confirming that the Turkish economy has definitely left the recession phase.
However, leading indicators suggest that the recovery is slow and vulnerable. Manufacturing
Leading indicators PMI fell for the fourth month in a row in November, while the central bank’s surveys signalled
suggest that the recovery that both business and household confidence are deteriorating after the improvement from
is slow and vulnerable March-July. Moreover, the capacity utilisation rate in the manufacturing sector fell to 70.7%
in November after 71.8%. This raised some doubts about the sustainability of the recent
rebound seen in manufacturing production.
All in all, our scenario favours a last cut of 25bp. However, we would not be surprised if the
MPC preferred to keep rates unchanged; this would in fact prove TRY-positive. We believe
A no change decision the end of the carry compression will be a key parameter for the TRY in the coming months.
would be TRY-positive For now, we stay long TRY/ZAR (directional view) and recommend selling USD/TRY above
1.50 (tactical view).
USD/BRL 1 week view Ô 1 month view Î
USD-BRL first tested 1.7000 on 14 October. The Brazilian authorities then went on the
offensive the following week, mounting an aggressive verbal intervention campaign and re-
The 1.70 to 1.78 range is imposing the IOF transaction tax. Since then, USD-BRL has traded inside a narrow range
now eight weeks old. We bounded by 1.70 and 1.78. It has tested 1.70 on various occasions and met with substantial
expect it to continue to central bank intervention, according to daily reserves data. This week, the 1.78 level has
hold and retain our DNT been tested on a couple of occasions and has held, apparently due to exporter sell orders
above 1.77. We think 1.78 will continue to hold and retain our enthusiasm for the 6-month
double-no-touch (DNT) digital option we added to our model portfolio three weeks ago. That
position has slipped a touch in the past few days, but should gain it back if spot USD/BRL
moves back below 1.75 over the next few days, as we expect.
As expected, the central bank of Brazil (Bacen) kept its base rate unchanged at 8.75% on 9
Bacen has been December. The statement was identical to that of the 21 October. The decision was
intervening at a pace of unanimous and the committee gave no bias for the next rate move. The minutes will be
about $400m per day released on 17 December and are likely to repeat the dovish tone of previous releases and
over the past week. recent public comments by Bacen officials. The latter might become a bit more hawkish if
Reserves data suggests USD/BRL were to move back above 1.90 because BRL appreciation has been an important
Bacen intervenes contributor to bringing inflation below the 4.50% target. For now however, Bacen welcomes
heaviest on days when a low volatility environment in FX and probably hopes to be able to keep the base rate
BRL rallies unchanged for three to six more months and thereby solidify economic recovery. Bacen has
been able to step away from the FX market in the past few days according to daily FX
reserves data. After growing by an average of $400m per day in the first week of December,
11 December 2009 13
Emerging Weekly
reserves have been essentially unchanged, which suggests that Bacen retired to the
sidelines as USD/BRL moved upwards from 1.70.
USD/MXN 1 week view Ô 1 month view Ô
We remain constructive Our long MXN/CLP position has experienced a wild ride this week, principally due to volatility
on MXN and committed in USD/MXN. That volatility has also had a negative impact on our USD/MXN vs USD/TRY vol
to our two model portfolio swap pairs trade. Despite these setbacks, we remain generally constructive on MXN and
trades, despite acute expect USD/MXN to ease back below 12.80 in the coming week. As we noted last week, long
volatility this week MXN positions on the IMM had gotten too large, making them ripe for a run on stops, which
is what occurred in the past few days. Now that the run is complete, volatility in USD/MXN is
likely to settle down, even if volatility in equities and other risk assets heats up.
The main event of the coming week in Mexico should be the confirmation of nominee
Augustin Carstens as Banxico governor. Mexico’s congress is scheduled to close for the
Some angst in market year after the 15th, so hearings are likely to be on that date, even though as we write they
over lesser status of haven’t been scheduled yet. After his nomination, Carstens said on radio that Banxico would
Cordero, the replacement have “a relatively long period” to revise its monetary policy stance. Although that
for finance minister pronouncement was a bit more dovish than the Ortiz-led Banxico typically uttered, Carstens
Carstens (who’s is a former research director at Banxico, in addition to having been well respected for his
becoming Banxico conservative monetary and fiscal principles when he was finance minister. The bigger issue
governor). We believe this for markets has been his announced replacement in that role: Ernesto Cordero. He does not
will pass quickly have the stature that Carstens had when he took up the FM role, which has led to some
market angst about his ability to pass further energy and tax reforms and hammer through
future budgets. That concern is probably overdone and we think will recede when growth
and oil prices pick up early next year.
USD/CLP 1 week view Ò 1 month view Ò

CLP outperformed this The Chilean peso has rallied modestly over the past week, with USD-CLP falling back below
week due to unwinding of 500. The rally comes despite a 7% decline in copper prices and weak November CPI
BRL/CLP and MXN/CLP readings of -0.5% mom and -2.3% yoy. The reason for CLP’s weakness seems more centred
carry trades in Brazil and Mexico. Both MXN and BRL have fallen against the USD over the past week.
Widespread use of CLP as a funding leg for long positions in BRL and MXN has caused CLP
to rally as MXN and BRL sell off.
BCCh and finance
The central bank (BCCh) and the finance ministry have already given very explicit warnings
ministry have threatened
about intervening if the CLP rises further. BCCh has also conducted monetary policy in a way
intervention. There is a
that is designed to stem CLP strength. We expect it to keep its base rate at 0.50% and issue
chance the threat and
another dovish statement after its Tuesday (15 December) meeting. There was nothing out of
strong CLP will be in
the ordinary in the BCCh’s reference to FX in its November press release, but at that point
Tuesday’s BCCh
USD/CLP had yet to break below 500. We believe there is a good chance that FX will be
statement
mentioned more pointedly in this statement.
Finance ministry says it In its intervention threats, the finance ministry noted that it had built FX intervention costs into
has money for the 2010 budget. But the fact that the budget is for next year, when there will be a new
intervention, but in next president and finance minister, creates some limited room for USD/CLP to trade below 500
year’s budget between now and the end of the year, but all the central bank needs to do is call to check
rates and it is able to push USD/CLP back above 500.
First rounds of The first round of the presidential election is this Sunday (13 December). Polls suggest that
presidential and centre-right candidate Sebastian Piñera will capture the most votes but won’t have the 50%+
legislative elections on majority necessary to avoid a second round. Former president Frei of the ruling centre-left
Sunday 13 December. Concertactión coalition is in a tight battle with centre-left independent Marco Enriquez-
Ruling party of past 20 Ominami for second place and the right to advance to the second round of voting on 17
years could lose power - January. A Frei loss would be politically upsetting for a country that has been ruled by
would be a big news Concertactión for 20 years, but it is unlikely to unsettle the markets. An outcome where Frei
event, but not a big fails to advance and Piñera is the obvious winner for president in the second round, but
market event Concertactión retains control of the legislature, would be particularly interesting. Such an
outcome would arguably lead to Mexico-like gridlock and potentially have a negative impact
on the ability to pass economic reforms. However, there is no obvious need for reforms at the
moment and therefore no likely market impact from the election.
14 11 December 2009
USD/IDR 1 week view Ò 1 month view Î
Until recently, the IDR had been performing strongly in 2009. However, it has recently
underperformed and is set to weaken modestly in the near-term and be a middle-of-the-pack
performer in 2010. Comments from the central bank following the 3 December policy meeting
suggested some concern over unchecked currency strength. This has prompted a review of
IDR expectations by investors who thought that a stronger IDR would not only be tolerated
but encouraged. Other risks for the currency are any renewed deterioration in trade and
current account positions, or a policy misstep by Bank Indonesia.
Reassessment of global
risk appetite will put IDR Heading into year-end, a clear reassessment of risk appetite is at play, with commodity prices
under some pressure lower and the USD firmer against most currencies. If USD gains reflect a more constructive
global demand outlook, the IDR as a pro-cyclical currency should perform well. Still, the
central bank’s change in tone suggesting a heightened focus on export competitiveness will
be a counter-balancing influence, leaving little chance of a repetition of the 2009
outperformance.
We target USD/IDR spot at 9,700 (last 9,435), but expect this level to provide a selling
opportunity. The current premium in USD/IDR NDFs is rich for entering IDR shorts (1M +69bp
and 6M +244bp), so we will use the NDF premium on a spot rally towards 9,700 to establish
long IDR trades against a basket of G7 currencies.
USD/INR 1 week view Ò 1 month view Î
We expect some consolidation in USD/INR over the next couple of weeks. But we ultimately
target resumption of INR strength, both on the impact of inflows and in tune with a general
move towards Asian currency strength. INR gains will be underpinned by maintenance of
strong portfolio and FDI inflows, in our view. The Reserve Bank of India has been one of the
most interventionist of central banks in 2009. However, we believe resistance to moderate
currency gains is waning at the same time as policymakers contemplate rate hikes, with the
first 25bp looking set to be delivered in Q1.
Portfolio and FDI flows
provide strong support to The INR has posted modest performance ytd, up just 4.3% against the USD. But it has
the INR outperformed other Asian currencies during the past couple of months, gaining 5.2% against
the dollar as markets reacted to a stronger-than-forecast pick-up in activity data. Industrial
production has rebounded on a recovery in exports. However, the trade account remains in
deficit and will be a drag on what would otherwise be outperformance in 2010.
The RBI next meets to decide on rates on 29 January. It will be a close call on whether or not
to deliver a 25bp hike. At the last meeting the SLR was raised 100bp and inflation forecasts
were revised higher. To position for rate tightening, which we expect will be aggressive once
under way, we recommend 1yr 2yr OIS flatteners (entry 75bp, target 30bp, stop loss at 95bp).
gaelle.blanchard@sgcib.com
jan_vejmelek@kb.cz
greg.anderson@sgcib.com
patrick.bennett@sgcib.com
11 December 2009 15
Emerging Weekly
Technical analysis
BRL/ILS: ST bearish signal
BRL/ILS should break LT resistance line
below the late October low of
2.13 and dip to the 1.99/2.03 2.19
support area.
Following the down-move 2.13
started at 2.19 in mid-
November, which revealed an
LT declining resistance line, 1.99/2.03
BRL/ILS broke below the lower
end of its MT rising channel.
This bearish signal is confirmed
by the bearish configuration of
the 14-week RSI.
So we expect BRL/ILS to break WEEKLY CHART
below the late October low of MT rising channel
2.13, which is in sight, and
extend the decline from 2.19 to
the 1.99/2.03 support area (*).
1.59
The cross should then attempt
to reverse upwards.
(*) Pullback level and lows of June
and August 2009.
14-week RSI
3rd support 2nd support 1st support Last 1st resistance 2nd resistance 3rd resistance
1.99/2.03 2.09 2.13 2.15 2.19 2.25 2.29
EUR/CZK: ST corrective up-move before return to mid-September low of 24.95

EUR/CZK – The MT
declining resistance line, 29.67
which comes at 26.42 this
week (-0.036/week), should
cap the upside and force WEEKLY CHART
EUR/CZK to return to the mid- MT resistance line
September low of 24.95, with a
step at 25.35.
EUR/CZK has recovered slightly
this weeks from 25.58, 26.58/76
revealing an ST rising support
line drawn from the mid-
September low of 24.95.
This up-move probably aims to
consolidate the recent sell-off.
We expect the MT declining
resistance line, which comes at 24.95
26.42 this week (-0.036/week),
to cap the upside and force ST support line
EUR/CZK to return to the 24.95
low, with a step at 25.35. 23.70
Thereafter, EUR/CZK should
break below 24.95 and target 22.89
the July low of 22.89, with a
step at 23.70.
3rd support 2nd support 1st support Last 1st resistance 2nd resistance 3rd resistance
24.95 25.37 25.58 25.77 25.83 26.23 26.42
hugues.naka@sgcib.com & fabien.manach@sgcib.com
16 11 December 2009
FX Quantsight
EM crosses (1y valuation) EM crosses (7y valuation)

V a lu e V a lu e V a lu e V a lu e
C r o s s r a te m ark et m odel z -s c o r e C r o s s r a te m a rk e t m odel z -s c o r e
A U D /T R Y 1 .3 7 1 .3 0 2 .2 8 A U D /T R Y 1 .3 7 1 .2 3 2 .3 2
C A D /T R Y 1 .4 2 1 .3 8 2 .1 1 A U D /P L N 2 .5 5 2 .2 3 2 .0 3
C Z K /H U F 1 0 .6 3 1 0 .2 6 1 .8 1 C A D /P L N 2 .6 5 2 .3 9 1 .8 0
E U R /T R Y 2 .2 2 2 .1 7 1 .5 7 N Z D /T R Y 1 .0 7 0 .9 8 1 .7 9
P L N /H U F 6 6 .2 2 6 4 .1 9 1 .5 7 B R L /P L N 1 .6 0 1 .3 9 1 .7 4
C H F /T R Y 1 .4 7 1 .4 3 1 .4 7 B R L /C Z K 9 .9 5 9 .0 3 1 .6 1
N Z D /T R Y 1 .0 7 1 .0 4 1 .4 4 B R L /M X N 7 .3 3 6 .4 3 1 .5 9
M X N /H U F 1 4 .4 2 1 3 .9 6 1 .4 3 N Z D /P L N 1 .9 9 1 .7 8 1 .4 7
A U D /P L N 2 .5 5 2 .4 8 1 .1 2 C H F /P L N 2 .7 4 2 .5 6 1 .4 7
B R L /M X N 7 .3 3 7 .1 8 0 .7 8 C A D /T R Y 1 .4 2 1 .3 2 1 .4 5
B R L /P L N 1 .6 0 1 .5 6 0 .7 2 J P Y /K R W 1 3 .2 2 1 2 .6 0 1 .2 5
B R L /C Z K 9 .9 5 9 .7 6 0 .6 9 C H F /T R Y 1 .4 7 1 .4 1 1 .2 3
B R L /Z A R 4 .2 9 4 .2 3 0 .5 7 E U R /T R Y 2 .2 2 2 .1 8 0 .5 8
J P Y /K R W 1 3 .2 2 1 3 .1 2 0 .3 5 C Z K /H U F 1 0 .6 3 1 0 .3 3 0 .5 1
C A D /P L N 2 .6 5 2 .6 3 0 .2 2 Z A R /J P Y 1 1 .6 1 1 1 .1 0 0 .3 5
N Z D /P L N 1 .9 9 1 .9 9 0 .1 0 T R Y /M X N 8 .5 5 8 .4 0 0 .3 4
C H F /P L N 2 .7 4 2 .7 4 -0 .0 3 M X N /H U F 1 4 .4 2 1 4 .4 9 -0 .1 2
P L N /M X N 4 .5 9 4 .6 0 -0 .0 7 G B P /P L N 4 .5 6 4 .6 0 -0 .1 3
Z A R /J P Y 1 1 .6 1 1 1 .6 4 -0 .1 0 B R L /Z A R 4 .2 9 4 .4 0 -0 .2 0
M X N /C Z K 1 .3 6 1 .3 6 -0 .1 4 P L N /M X N 4 .5 9 4 .6 5 -0 .2 9
M X N /C A D 0 .0 8 0 .0 8 -0 .1 7 P L N /H U F 6 6 .2 2 6 7 .3 0 -0 .3 2
P L N /C Z K 6 .2 3 6 .2 5 -0 .2 0 M X N /C Z K 1 .3 6 1 .4 0 -0 .3 8
C Z K /J P Y 5 .0 1 5 .0 4 -0 .3 2 G B P /C Z K 2 8 .4 1 2 9 .9 6 -0 .6 2
G B P /P L N 4 .5 6 4 .6 1 -0 .3 9 T R Y /B R L 1 .1 7 1 .3 1 -0 .8 5
M X N /J P Y 6 .8 0 6 .8 6 -0 .4 8 M X N /C A D 0 .0 8 0 .0 9 -1 .0 6
P L N /J P Y 3 1 .2 1 3 1 .5 4 -0 .5 0 P L N /C Z K 6 .2 3 6 .5 2 -1 .1 1
G B P /C Z K 2 8 .4 1 2 8 .8 6 -0 .6 4 T R Y /Z A R 5 .0 1 5 .7 4 -1 .2 2
T R Y /Z A R 5 .0 1 5 .1 8 -0 .9 8 C Z K /J P Y 5 .0 1 5 .4 1 -1 .4 3
T R Y /B R L 1 .1 7 1 .2 3 -1 .3 6 M X N /J P Y 6 .8 0 7 .5 9 -1 .5 3
T R Y /M X N 8 .5 5 8 .7 9 -1 .4 0 H U F /J P Y 0 .4 7 0 .5 2 -1 .8 0
H U F /J P Y 0 .4 7 0 .4 9 -1 .7 4 P L N /J P Y 3 1 .2 1 3 5 .2 4 -1 .8 8
T R Y /J P Y 5 8 .1 3 6 0 .3 3 -2 .0 1 T R Y /J P Y 5 8 .1 3 6 3 .7 2 -2 .0 7
PCA on EM vol (ATM, 3M, USD base) Risk premia for EM volatilities
C urrency Im plied R ealised R isk
V a lu e V a lu e
pair E xpiry vol (% ) vol (% ) prem ium
V o la tility z -s c o r e m a r k e t (% ) m o d e l (% )
U S D /K R W 2Y 15.0 24.2 0.6
MXN 1 .3 5 1 5 .3 0 1 2 .4 3 E U R /C ZK 2Y 7.3 11.1 0.7
IN R 1 .0 6 1 2 .1 5 1 0 .6 6 E U R /P LN 1Y 12.9 17.1 0.8
PLN 0 .9 3 1 9 .1 2 1 8 .0 1 E U R /C ZK 1Y 8.5 11.2 0.8
BRL 0 .6 0 1 7 .8 0 1 6 .9 4 E U R /P LN 2Y 12.0 15.4 0.8
CZK 0 .4 0 1 5 .3 0 1 4 .9 9 E U R /H U F 1Y 12.5 15.7 0.8
HUF 0 .1 9 1 8 .5 2 1 8 .3 4 U S D /K R W 6m 14.3 11.0 1.3
ID R 0 .1 7 1 3 .9 6 1 3 .5 9 U S D /K R W 3m 13.5 10.1 1.3
ZAR -0 .4 0 1 9 .8 8 2 0 .3 7 U S D /B R L 3m 17.9 13.4 1.3
KRW -0 .6 2 1 3 .5 0 1 4 .9 5 U S D /M XN 6m 16.0 11.5 1.4
SGD -1 .6 7 6 .6 2 7 .3 3 U S D /K R W 1m 12.0 8.3 1.4
TRY -1 .8 7 1 2 .9 9 1 6 .0 4 U S D /B R L 1m 17.4 11.9 1.5
11 December 2009 17
Emerging Weekly
Outlook 2010), correcting the appreciation trend. Current

Fixed Income Strategy spread is -255bp. Target -460bp.
How to play 2010 themes

Graph 2. Non-resident debt holdings for CE3 and Turkey
Following on from our CEEMEA local strategy outlook (see
Fixed Income Outlook 2010), we spell out the specific
Non-resident holdings of local govt

trades which play well with the following three key themes: 43 %
38
1. Differentiation does matter – receive PLN 5y IRS vs pay
RUB 5y CCS 33
28
2. Monetary cycles favour CEEMEA rates over Asia/LatAm
debt*
– receive South Africa vs pay Brazil short rates 23
3. Steepening has not necessarily faded yet – Enter a PLN 18
2s5s flattener around +80bp during H1 2010 13
8
Limited impact on EM bond funds from recent worries Jan 04 Jul 05 Dec 06 May 08 Oct 09
BUT differentiation remains key Czech Poland Hungary Turkey
Recent concerns on Dubai and Greece do not seem to
have put investors off emerging market debt, as evident in Source: SG Cross Asset Research, Bloomberg, Ministry of Finance. * includes external debt for
the Czech Republic
the latest fund flow data from EPFR Global, which still
shows inflows into EM bond funds (see Graph 1).
Estimated carry is +50bp a year (assuming equal
weightings on both legs). Due to the higher beta status of
Graph 1. EM bond fund flows are still up Russian rates, we recommend underweighting the RUB
leg, which should improve the carry further.
USDbn
19 Graph 3. PLN 5y IRS and RUB 5y CCS
15
% %
11 35 7
30 6.5
7
25 6
3
20 5.5
-1
15 5
Jan 04 Mar 05 May 06 Jul 07 Sep 08 Nov 09
10 4.5
All EM Funds Cummulative Flow US$ in bn
All EM Bond Funds 5y average 5 4
Dec 07 May 08 Sep 08 Feb 09 Jun 09 Nov 09
Source: SG Cross Asset Research, EPFR Global
RUB 5y CCS (LHS) PLN 5y IRS (RHS)
In CEEMEA, non-resident holdings of government debt for Source: SG Cross Asset Research, Bloomberg
Poland, Czech Republic, Turkey and South Africa are also
showing an upward trend. However, non-resident holdings
of Hungarian local debt are clearly lagging (see Graph 2). Deferring monetary cycles favours CEEMEA rates over
This reiterates the importance of differentiation as Asia/LatAm peers
discussed in our 2010 Outlook. To recap, we favour local
CEEMEA is likely to lag LatAm and Asia in reversing the
markets (1) with lower external debt and/or loan losses and
easing cycles. In fact, we think cuts are still possible in the
(2) lower FX intervention risk, especially where local rates
Czech Republic, Hungary, Russia, Romania, South Africa
are highly correlated with FX.
and Turkey (see 2010 Outlook). In LatAm, we expect Brazil
Strategy: Receive 5y Polish IRS vs pay Russia cross to lead the hiking cycle as early as end-Q2 2010.
currency swaps (CCS) to express our preference for
Strategy: Receive ZAR 1y1y forward vs pay Brazil DI
Poland over Russia based on the two considerations
futures in mid 2011-2012 maturities (Graph 4). We already
above. We choose 5y because it offers some duration and
have a ZAR 1y1y receiver position in our portfolio from July
is less affected by monetary policy bias. We look to receive
2009. We maintain this position to play this theme and use
PLN 5y IRS from 5.60% (see Graph 3) and enter the Russia
any spike up towards 8.20% as an opportunity to increase
leg towards the first half of March as we expect inflation to
rebound and RUB to depreciate into H1 2010 (see FX
18 11 December 2009
this position. Target: 7.75%. Carry is positive at +15bp over Graph 5. PLN 2s5s IRS curve
three months.
bp
We choose Brazil rates as we expect it to lead the hiking
cycle in LatAm. Hikes are already priced in. Hence, we look 66
for a more hawkish stance from the Bacen or more robust
inflation data to establish the payer position. 42
18
Graph 4. ZAR 1y1y fwd and Brazil Jan 12 DI -5

-29
% %
13 18 -53
12 16 Dec 07 May 08 Sep 08 Feb 09 Jun 09 Nov 09
10 15 PLN 2s5s IRS Curve
9 13 Source: SG Cross Asset Research, Bloomberg
8 12
7 11
Dec 07 May 08 Sep 08 Feb 09 Jun 09 Nov 09 esther.law@sgcib.com
ZAR 1y1y fwd (LHS) Brazil Jan 12 DI (RHS)
Source: SG Cross Asset Research, Bloomberg
Varying curve dynamics suggest selective flatteners

It is premature to assume a flattening bias for the whole
region at this juncture, as easing bias remains for some
countries in this region (see 2010 Fixed Income Outlook).
Taking into consideration the monetary policy cycle,
fundamentals and relationship with the euro curve (on
which we expect further bull flattening in 2010), we advise
positioning for a flattener in Poland.
Strategy: Look to position for a PLN 2s5s flattener (see
Graph 5) around +80bp during H1 2010. Target +50bp.
11 December 2009 19
Issuance Calendar
Date Issuer Bond Planned Amount (Bn local ccy)* Bid-Cover
01-Dec-09 Hungary 3M T-Bill D100310 40.00 3.24
South Africa R203 1.30 4.38
R208 0.80 5.21
02-Dec-09 Poland OK0712 1.44 3.80
PS0415 3.63 1.55
Czech 15Y 2009-2024, 5.70% Bond 3.03 2.60
03-Dec-09 Czech T-Bill 579 5.00 Cancelled
Hungary 2013/E 7.50% 25.00 1.72
2015/A 8.00% 20.00 2.40
2019/A 6.50% 10.00 2.89
04-Dec-09 South Africa T-Bill 364 day 0.30 1.68
T-Bill 273 day 0.70 2.01
T-Bill 182 day 0.90 2.08
T-Bill 91 day 3.65 1.35
R197 Inflation-linked bond 0.50 1.00
R202 Inflation-linked bond 0.10 1.16
07-Dec-09 Israel ILGOV 4% 03/2012 0.25 3.28
ILGOV 4.5% 01/2015 0.25 2.08
ILGOV 5% 01/2020 0.50 3.27
ILFRN 5/2020 0.25 10.15
08-Dec-09 Turkey 20m zero coupon 1.02 3.04
Hungary T-Bill D100317 40.00 3.69
South Africa R204 1.00 4.61
R207 1.10 5.15
09-Dec-09 Poland IDS1018 (BGK) 1.91 2.10
10-Dec-09 Hungary T-Bill D101215 40.00 1.87
11-Dec-09 South Africa T-Bill 364 day 0.30
T-Bill 273 day 0.70
T-Bill 182 day 0.90
T-Bill 91 day 3.65
R197 Inflation-linked bond Total I/L offer = 0.6
R210 Inflation-linked bond
R202 Inflation-linked bond
14-Dec-09 Israel ILGOV 4.5% 01/2015 0.25
ILGOV 5% 01/2020 0.25
ILCPI 1.5% 06/2014 0.25
ILCPI 3% 10/2019 0.25
ILTBIL0 08/2010 0.25
15-Dec-09 South Africa R209 0.90
R157 1.20
16-Dec-09 Poland T-bond switch auction
17-Dec-09 Hungary 2013/E 7.50% 25.00
2015/A 8.00% 15.00
2019/A 6.50% 10.00
18-Dec-09 South Africa Treasury Bills
21-Dec-09 Israel ILGOV 5% 01/2020 0.25
ILCPI 4% 5/2036 0.25
ILFRN 5/2020 0.25
ILTBIL0 08/2010 0.25
22-Dec-09
23-Dec-09
25-Dec-09
28-Dec-09
29-Dec-09
30-Dec-09
Source: SG Cross Asset Research, Ministry of Finance, Reuters, Bloomberg
*Past auctions show amount sold, Czech Republic,Israel Bid-Cover ratio is calculated from the competitive auction
20 11 December 2009
Rates Quantsight
PCA Results across EM curves

PLN HUF CZK ZAR MXN
10Y 5.61% (0.0bp) 6.96% (+16.0bp) 3.48% (-1.0bp) 8.78% (+1.0bp) 8.26% (+10.2bp)
10Y-2Y 68.0bp (+1.0bp) 34.9bp (+4.5bp) 117.0bp (+4.0bp) 117.5bp (-4.5bp) 193.5bp (-11.3bp)
Curve indicators
Level indicator 93.7% (-0.8%) 11.1% (+3.8%) 45.1% (-3.1%) 58.8% (-1.4%) 38.0% (+10.2%)
Slope indicator 53.7% (+1.7%) 100.0% (+9.7%) 82.8% (+6.4%) 96.5% (+4.9%) 58.4% (+1.6%)
Convexity indicator 32.2% (+1.6%) 20.6% (+2.5%) 34.1% (+7.4%) 16.6% (+4.9%) 43.0% (-2.4%)
Level explanatory power 98.1% 99.6% 94.3% 83.0% 82.3%
Slope explanatory power 1.7% 0.3% 4.8% 16.4% 14.9%
Convexity explanatory power 0.2% 0.0% 0.6% 0.4% 1.8%
Top driver 5Y 2Y 7Y 7Y 7Y
Best flattener 7Y-10Y 5Y-7Y 5Y-10Y 2Y-5Y 2Y-7Y
Best slope trades
Ind. mid / spread to model 1.0bp (+1.5bp) 4.0bp (+2.4bp) 47.0bp (+2.7bp) 83.0bp (+0.4bp) 167.3bp (+12.6bp)
z-score 0.90 0.99 2.45 0.48 2.16
Total carry and roll-down (3M) -1.1bp -1.7bp -0.2bp 18.4bp -6.4bp
Best steepeners 5Y-7Y 2Y-5Y 5Y-7Y 5Y-7Y 7Y-10Y
Ind. mid / spread to model 3.0bp (-1.0bp) 36.9bp (-1.5bp) 19.0bp (+0.6bp) 17.0bp (-0.8bp) 26.3bp (-11.8bp)
z-score -0.84 -0.90 0.40 -0.47 -2.14
Total carry and roll-down (3M) 3.9bp 10.3bp 0.7bp -0.8bp 4.6bp
Best barbell payer (*) 5Y-7Y-10Y 3Y-5Y-7Y 3Y-5Y-7Y 5Y-7Y-10Y 3Y-5Y-7Y
Ind. mid / spread to model 2.0bp (-2.5bp) 13.5bp (-2.9bp) 12.0bp (-5.9bp) 14.5bp (-1.5bp) 29.3bp (-0.8bp)
z-score -0.95 -0.68 -2.06 -0.46 -0.10
Total carry and roll-down (3M) 2.7bp 2.8bp 4.2bp -1.5bp 3.8bp
Correlation with levels 77% 1% 11% 48% -41%
Best barbells
Correlation with slope 22% 52% 92% 59% 43%

Correlation with convexity -16% -44% -30% -3% 57%
Best barbell rec (*) 2Y-5Y-8Y 5Y-7Y-10Y 2Y-5Y-8Y 2Y-5Y-8Y 2Y-5Y-8Y
Ind. mid / spread to model 61.0bp (+1.6bp) 10.0bp (+4.3bp) 42.0bp (-0.9bp) 63.0bp (+1.4bp) 84.5bp (+16.2bp)
z-score 0.83 0.90 -0.36 0.69 1.83
Total carry and roll-down (3M) -5.5bp -0.1bp -3.4bp 17.8bp 3.8bp
Correlation with levels 92% 64% 18% 50% -53%
Correlation with slope 25% -28% 92% 82% 54%
Correlation with convexity -29% -74% -35% -2% 41%
* using standard 50-50 barbell weights
11 December 2009 21
The voting at the upcoming meeting will for sure be very

CNB Watch tight again and the chances are 50:50 of either a cut or no
CNB will have to decide on rates - the vote will be cut. Thus our prediction that the CNB will cut by 25bp is
tight again very uncertain. The market is pricing in a 50% possibility of
a 25bp.
The CNB will have its last monetary policy meeting for
this year on Wednesday. The previous meeting provoked Graph 1. 2W repo rate and 3M Pribor forecast
some misunderstanding of the CNB’s decision to keep
rates on hold at 1.25%. The confusion arose because the 3M PRIBOR- KB forecast (monthly averages)
CNB’s new forecast had indicated it would cut by 75bp. 2W Repo - KB forecast (monthly averages)
Arguments to keep rates unchanged were not strong 4.25
enough to justify this decision, in our view. In fact, not all 3.75
members voted to keep rates on hold: three members
out of seven voted for a cut of 25bp (governor Tuma, 3.25
vice-governor Singer and chief executive director 2.75

Tomsik).
2.25
First, we take a look at the most important data releases 1.75

and the development of EUR/CZK during the past
month, which affect the bank board’s decision. 1.25
Consumer price inflation in November was 40bp above 0.75

the new CNB forecast and this deviation was caused Jan.09 May.09 Sep.09 Jan.10 May.10 Sep.10
mainly by fuel prices and to a lesser extent by the

Source: Bloomberg, KB
adjusted inflation. GDP qoq dynamics for Q309 were
slightly worse than expected (on the other hand, the yoy
figure was better due to CSO revisions). From a
structural point of view, the dynamics of household and We think there are three main reasons why the CNB should
government consumption were better than the CNB cut rates further. First, adjusted inflation is still negative
expected. Exceptionally good wage data for Q309 were and will remain so next year. Second, it is very probable
caused by temporary factors and the fact that the layoffs the economy will post a W-shape recovery, which means
affected lower-paid employees to a larger extent (which there will be another drop in GDP in H1 10 (currently the
had the statistical effect of improving the average). The data from Germany support this view as the effects from
CNB considered the Czech crown as a pro-inflationary the foreign fiscal stimuli are fading; we also must take into
risk factor, which reflected the temporary weakening of account domestic fiscal restriction in 2010). Thus, the
the CZK against the EUR above 26.50 just ahead of the possibility of deflation in the Czech Republic cannot be
last meeting. Meanwhile, the crown strengthened and so excluded and this is important for the monetary policy
far vs the euro in Q4 09 is almost in line with the latest decision. Third, the CNB board members need to realise
CNB forecast. Oil prices in EUR terms are only slightly that the bank’s inflation forecast may not materialise,
higher. Overall, the data are rather pro-inflationary. But simply because current market interest rates are more
the CNB forecast did trail a cut of 75bp; the pro- restrictive than assumed in its forecasts, i.e. 3M Pribor
inflationary data in our view merely reduces the size of currently stands at 1.72%, while the CNB assumes an
the likely cut, not its probability. Thus, judging from the average of 1.1% for Q4 09 and 1.2% for Q1 10.
central bank’s forecast, we should see a cut of 25bp. jiri.skop@kb.com
However, the bank board’s last decision tells us it does
not have to accept the recommendation from its forecast
(e.g. due to financial stability or potential growth
uncertainty).
Second, we look at the latest comments of those
members who did not vote for a cut (four out of seven) to
see if there is a chance of them changing their mind. If
one of these members changes his/her view, or misses
the meeting, the chances of a cut are high. Hampl
commented to Reuters (8 December) that he does not
see any argument to change his view on interest rates.
Rezabek told Dow Jones (7 December) that “without
preempting my actual decision, I still ponder whether
stability remains a better option than another easing”.
We also have some indication from Zamrazilova who
said “If there are no inflation risks on the horizon, then I
think another cut could be in play, but I am really
undecided.” From all the comments, we can conclude
that there is a chance that one vote for a cut will emerge.
22 11 December 2009
Economic Data Preview

Czech Retail Sales (Previous: -7.6 % yoy; KB Forecast: -6.2%) Retail sales still under pressure
Retail sales ex cars (y/y, wda)
We expect Czech retail sales to fall 0.2% mom in October Consumer confidence (CSO) 110
13%
(seasonally and working-day adjusted). Sales in the
105
automotive sector should decrease 0.9% mom (WDA, SA),
according to our estimate, as indicated by new car 9% 100
registrations. Sales ex-autos (+0.0% mom WDA, SA) will 95

we think be supported by improving consumer confidence 5%
and also surprisingly high wage growth. On the other 90
hand, retail sales are still being pulled down by the 1% 85

worsening labour market (rising unemployment). Year-on-
80
year, we expect a decrease in retail sales of 6.2% in -3%
October. Market consensus, according to Reuters is more 75
optimistic, expecting a decline of 4.5% yoy. -7% 70
Jan.01 Jan.03 Jan.05 Jan.07 Jan.09
Source: CSO, KB
jiri_skop@kb.cz
Czech PPI (Previous: -4.6% yoy; KB Forecast: -3.0% yoy) PPI
PPI y/y eur/czk y/y (+14M)

We expect Czech producer prices to decrease 0.3% mom 12%
in November, due to seasonality. While the food industry 10% 11%
should continue to push producer prices down, oil and
8%
metal prices now have the opposite effect. Their decline 5%
should decelerate from -4.6 yoy in October to -3.0% yoy 6%
recorded in November. Market consensus, according to 4% -1%

Reuters, sees a decline of just 2.7% yoy. 2%
0% -7%
-2%
-13%
-4%
-6% -19%
Jan.00 Jan.02 Jan.04 Jan.06 Jan.08 Jan.10
Source: CSO, KB
jiri_skop@kb.cz
11 December 2009 23
EM cross asset performance and SG sentiment indicator

SG Sentiment indicator* EM FX performance (long EM FX 180d return %)
1 30
Risk seeking
SG Sentiment Indicator
25
0.8
20
0.6 15
10
0.4
5
0.2 0
Risk averse (5)
RON
HUF
RUB
PLN
MXN
KRW
ILS
CNY
CZK
TRY
BRL
ZAR
0
Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09
Source: SG Cross Asset Research, Bloomberg. *see FX QuantSight Source: SG Cross Asset Research, Bloomberg
EM rates performance (2Y IRS bp change YTD) EM Equities performance (% change YTD)
RON 120
CNY
100
ILS
KRW 80
PLN 60
CZK 40
ZAR
20
HUF
MXN 0
RON
HUF
RUB
USD
PLN
MXN
KRW
CZK
ILS
CNY
TRY
BRL
UAH
KZT
ZAR
BRL^
TRY*
RUB*
EM equities Chg (%) since 01 Jan 09
-2000 -1500 -1000 -500 0 500 MSCI EM
Source: SG Cross Asset Research, Bloomberg, ^Jan 11 DI * XCCY Source: SG Cross Asset Research, Bloomberg
EM 3M FX implied volatility (% change YTD) EM CDS performance (% change YTD)
0 25 0 1600
-10 1400
-20 20
-20 1200
-40 15 -30 1000
-40 800
-60 10 -50 600
-60 400
-80 5
-70 200
-100 0 -80 0
RON
HUF
RUB
RON
EUR
PLN
MXN
HUF
KRW
TRY
CZK
ILS
RUB
CNY
BRL
PLN
MXN
UAH
KZT
KRW
CNY
ILS
TRY
CZK
BRL
ZAR
ZAR
EMFX 3m implied vol Chg (%) since 01 Jan 09 (LHS)

CDS Chg (%) since 01 Jan 09 (LHS) Last price (RHS)
Last price (RHS)
Source: SG Cross Asset Research, Bloomberg Source: SG Cross Asset Research, Bloomberg
24 11 December 2009
EM FX forecasts
EUR/PLN 4.00 3.80 3.70 3.70

EUR/HUF 260 255 250 250
EUR/CZK 25.00 25.20 24.80 24.50
EUR/RON 4.20 4.10 4.00 4.00
EUR/RUB 43.50 43.80 44.00 43.50
EUR/TRY 2.20 2.10 2.00 1.95
USD/RUB 28.20 27.80 28.50 29.50

USD/TRY 1.40 1.35 1.35 1.40
USD/ZAR 7.80 7.80 8.00 8.20
USD/ILS 3.60 3.40 3.50 3.50
USD/BRL 1.75 1.80 1.95 1.90

USD/MXN 12.70 12.60 12.70 12.80
USD/CLP 480 480 500 520
USD/ARS 3.80 3.80 3.83 3.85
USD/COP 1950 2000 2000 2000
USD/CNY 6.75 6.70 6.65 6.60

USD/HKD 7.80 7.80 7.80 7.80
USD/INR 45.50 44.75 45.25 45.00
USD/IDR 9400 9250 9200 9200
USD/MYR 3.35 3.30 3.27 3.23
USD/PHP 46.50 46.00 45.50 45.25
USD/SGD 1.36 1.35 1.33 1.31
USD/KRW 1125 1075 1060 1045
USD/TWD 31.25 31.00 30.75 30.50
USD/THB 32.75 32.50 32.25 32.25
EMU Monitor
General
General Maximum Maximum
HICP Long-term Government ERM II Lower Central Upper
Government upward downward
Inflation* GB yield* Balance, entry Rate Rate Rate
Debt deviation** deviation**
last Q4 avg
period 10.2009 10.2009 06.2009 06.2009
Reference Value 1.8 5.8 -3.0 60
Czech Republic 1.1 4.9 -3.9 34 No

Hungary 3.8 9.3 -4.3 77 No
Poland 3.9 6.1 -5.4 49 No
Romania 5.9 9.7 -7.8 17 No

Bulgaria 3.6 7.3 -2.9 14 No
Estonia 1.8 NA -6.3 6 Jun.04 13.300 15.647 17.994 0.0% 0.0%

Latvia 5.3 11.5 -8.2 24 May.05 0.597 0.703 0.808 1.0% -0.9%
Lithuania 5.4 13.5 -7.4 22 Jun.04 2.935 3.453 3.971 0.0% 0.0%
Note: Red cell means not fulfilling the criteria
* 12-month average rate
** Maximum percentage deviations from ERM II central rate over last two years, based on a ten-day moving average of daily data at business frequency. An upward/downward deviation
implies that the currency is on the weak/strong side of the band.
Source: ECB, EcoWin, Komercni Banka, a.s., SG Cross Asset Research
11 December 2009 25
Interest rates forecasts

Poland 3.50 3.50 3.50 3.50

Hungary 6.00 5.00 5.00 5.00
Czech Rep. 1.00 1.00 1.25 1.50
Romania 7.50 6.50 6.50 6.50
Russia 8.50 8.50 8.50 8.50
Turkey 6.25 6.25 6.25 6.25
South Africa 6.50 6.50 6.50 6.50
Israel 1.50 2.00 2.25 2.25
Brazil 8.75 9.00 9.50 10.25

Mexico 4.50 4.50 5.00 5.75
Chile 0.50 0.50 1.00 1.75
Colombia 3.50 3.75 4.50 5.25
China 5.31 5.31 5.31 5.31

Indonesia 6.50 6.75 7.00 7.25
Malaysia 2.00 2.00 2.00 2.00
Philippines 4.00 4.00 4.00 4.00
South Korea 2.50 2.75 3.00 3.25
Taiwan 1.25 1.50 1.75 2.00
India 5.00 5.25 5.50 5.75
Thailand 1.25 1.50 1.75 2.00
Macro forecasts
GDP Inflation (year average)
2007 2008 2009 2010 2007 2008 2009 2010
Poland 6.7 4.9 1.5 2.0 2.5 4.2 3.4 2.5

Czech Republic 6.1 2.6 -4.3 1.3 2.9 6.3 1.1 1.1
Hungary 1.1 0.6 -6.7 -1.0 8.0 6.2 4.5 4.0
Russia 8.1 5.7 -9.7 3.5 9.0 14.1 11.5 10.0
Current account balance (% of GDP) Fiscal balance (% of GDP)

2007 2008 2009 2010 2007 2008 2009 2010
Poland -3.5 -5.0 -1.0 -2.0 -1.9 -3.6 -5.8 -6.5

Czech Republic -3.2 -3.1 -1.6 -2.4 -0.7 -2.1 -5.7 -5.5
Hungary -6.2 -8.4 -3.0 -3.0 -5.0 -3.8 -4.0 -3.8
Russia 6.1 4.3 2.5 1.5 6.1 3.1 -8.5 -6.0
Source: SG Cross Asset Research, KB economic & strategy research, SG Poland, BRD Economic Research
26 11 December 2009
Fixed Income, Forex & Credit Research

Head of Research Benoît Hubaud (33) 1 42 13 61 08 Assistant Linda Ferhat (33) 1 42 13 92 89
(44) 20 7676 7168
Fixed Income & Forex Strategy Credit Research

Head Vincent Chaigneau (44) 20 7676 7707 Head Benoît Hubaud (33) 1 42 13 61 08
(44) 20 7676 7168
Fixed Income Ciaran O'Hagan (33) 1 42 13 58 60 Deputy Head Guy Stear, CFA (33) 1 42 13 40 26
Adam Kurpiel (33) 1 42 13 63 42
Aro Razafindrakola (33) 1 42 13 64 93 Financials Bank Nathalie Deliens (44) 20 7676 7262
Jose Sarafana (33) 1 42 13 56 59 Bank Matthew Maxwell (44) 20 7676 7030
Guillaume Baron (33) 1 42 13 57 07 Insurance Rötger Franz (44) 20 7676 7167
Patrick Gouraud (44) 20 7676 7850
David Mendez-Vives (33) 1 42 13 31 03 ABS Jean-David Cirotteau (33) 1 42 13 72 52
Asia-Pacific Christian Carrillo (81) 3 5549 5626
Auto & Transportation Pierre Bergeron (33) 1 42 13 89 15
Foreign Exchange Carole Laulhere (33) 1 42 13 71 45 Stéphanie Herrault (33) 1 42 13 63 11
Phyllis Papadavid (44) 20 7676 7999
Peter Frank (44) 20 7676 7458 Consumers & Services Sonia van Dorp (33) 1 42 13 64 57
David Deddouche (33) 1 42 13 56 22 Caroline Duron (33) 1 58 98 30 32
Patrick Bennett (HK) (852) 21 66 54 39 Marc Blanc (33) 1 42 13 43 87
Greg Anderson, CFA (1) 212 278 5715
Industrials Roberto Pozzi (44) 20 7676 7152
Emerging markets Murat Toprak (44) 20 7676 7491 Barbora Matouskova (44) 20 7676 7023
Gaëlle Blanchard (44) 20 7676 7439
Esther Law (44) 20 7676 7396 Telecom & Media Juliano Hiroshi Torii, CFA (44) 20 7676 7158
HY Robert H Jaeger, CFA (44) 20 7676 7136
Technical Analysis Hughes Naka (33) 1 42 13 51 10
Stéphane Billioud (33) 1 42 13 35 55 Utilities Hervé Gay (33) 1 42 13 87 50
Fabien Manac’h (33) 1 42 13 88 35 Florence Roche (33) 1 42 13 63 99
Economic Research
Head Benoît Hubaud (33) 1 42 13 61 08
Great Britain Brian Hilliard (44) 20 7676 7165 Credit Strategy
Europe Véronique Riches-Flores (33) 1 42 13 84 04 Head Suki Mann (44) 20 7676 7063
ECB Watcher James Nixon (44) 20 7676 7385 Juan Esteban Valencia (44) 20 7676 7059
Europe Olivier Gasnier (33) 1 42 13 34 21
United States Stephen Gallagher (1) 212 278 44 96
United States Aneta Markowska (1) 212 278 66 53
Asia Glenn Maguire (HK) (852) 21 66 54 38
Europe Klaus Baader (44) 20 7676 7609 Web Development Thierry Cleber (33) 1 58 98 08 26
Commodities
Global Head Frédéric Lasserre (33) 1 42 13 44 06
Agricultural Commodities Emmanuel Jayet (33) 1 42 12 57 03
Carbon & Coal Emmanuel Fages (33) 1 42 13 30 29
Oil & Products Michael Wittner (44) 20 7762 5725 Quantitative Research
Oil & Products / Strategy Remy Penin (33) 1 42 13 55 74 Head Julien Turc (33) 1 42 13 40 90
Steel & Plastics Sebastian Castelli (44) 20 7762 5275 Benjamin Herzog (33) 1 42 13 67 49
Metals David Wilson (44) 20 7762 5384 Karsten Hippler (33) 1 42 13 94 75
US Natural Gas - Strategy Laurent Key (1) 212 278 57 36 Lorenzo Ravagli (33) 1 42 13 73 76
Commodity Strategy Jesper Dannesboe (44) 20 7762 5603 Marc Teyssier (33) 1 42 13 55 96
Technical Analysis Stephanie Aymes (44) 20 7762 5898 Sandrine Ungari (33) 1 42 13 43 02
Paris London Hong Kong New York
Tour Société Générale, 17 cours Valmy SG House – 41, Tower Hill Level 38, Three Pacific Place 1221 Avenue of the Americas
92987 Paris La Défense Cedex London EC3 N 4SG 1 Queen's Road East New York, NY 10020
France United Kingdom Hong Kong USA
IMPORTANT DISCLAIMER: The information herein is not intended to be an offer to buy or sell, or a solicitation of an offer to buy or sell, any securities and including any expression of opinion, has been obtained from or is based
upon sources believed to be reliable but is not guaranteed as to accuracy or completeness although Société Générale (“SG”) believe it to be clear, fair and not misleading. SG, and their affiliated companies in the SG Group, may
from time to time deal in, profit from the trading of, hold or act as market-makers or act as advisers, brokers or bankers in relation to the securities, or derivatives thereof, of persons, firms or entities mentioned in this document or be
represented on the board of such persons, firms or entities. SG is acting as principal trader in debt securities that are the subject of this report and may hold debt securities positions. Employees of SG, and their affiliated companies
in the SG Group, or individuals connected to then, other than the authors of this report, may from time to time have a position in or be holding any of the investments or related investments mentioned in this document. Each author
of this report is not permitted to trade in or hold any of the investments or related investments which are the subject of this document. SG and their affiliated companies in the SG Group are under no obligation to disclose or take
account of this document when advising or dealing with or for their customers. The views of SG reflected in this document may change without notice. To the maximum extent possible at law, SG does not accept any liability
whatsoever arising from the use of the material or information contained herein. This research document is not intended for use by or targeted at retail customers. Should a retail customer obtain a copy of this report they should
not base their investment decisions solely on the basis of this document but must seek independent financial advice.
Important notice: The circumstances in which materials provided by SG Fixed & Forex Research, SG Commodity Research, SG Convertible Research, SG Technical Research and SG Equity Derivatives Research have been produced are such
(for example because of reporting or remuneration structures or the physical location of the author of the material) that it is not appropriate to characterise it as independent investment research as referred to in European MIF directive and that
it should be treated as a marketing material even if it contains a research recommendation (« recommandation d’investissement à caractère promotionnel »). However, it must be made clear that all publications issued by SG will be clear, fair,
and not misleading.
Analyst Certification: Each author of this research report hereby certifies that (i) the views expressed in the research report accurately reflect his or her personal views about any and all of the subject securities or issuers
and (ii) no part of his or her compensation was, is, or will be related, directly or indirectly, to the specific recommendations or views expressed in this report.
Notice to French Investors: This publication is issued in France by or through Société Générale ("SG") which is authorised by the CECEI and regulated by the AMF (Autorité des Marchés Financiers).
Notice to UK investors: This publication is issued in the United Kingdom by or through Société Générale ("SG") London Branch which is regulated by the Financial Services Authority ("FSA") for the conduct of its UK
business.
Notice To US Investors: This report is intended only for major US institutional investors pursuant to SEC Rule 15a-6. Any US person wishing to discuss this report or effect transactions in any security discussed herein
should do so with or through SG Americas Securities, LLC (“SGAS”) 1221 Avenue of the Americas, New York, NY 10020. (212)-278-6000. THIS RESEARCH REPORT IS PRODUCED BY SOCIETE GENERALE AND NOT
SGAS.
Notice to Japanese Investors: This report is distributed in Japan by Société Générale Securities (North Pacific) Ltd., Tokyo Branch, which is regulated by the Financial Services Agency of Japan. The products mentioned
in this report may not be eligible for sale in Japan and they may not be suitable for all types of investors.
Notice to Australian Investors: Société Générale Australia Branch (ABN 71 092 516 286) (SG) takes responsibility for publishing this document. SG holds an AFSL no. 236651 issued under the Corporations Act 2001 (Cth)
("Act"). The information contained in this newsletter is only directed to recipients who are wholesale clients as defined under the Act.
IMPORTANT DISCLOSURES: Please refer to our website:
For external clients: http://www.globalmarkets.sgcib.com/credit/compliance.rha
For SG personnel: https://globalmarkets.fr.world.socgen/credit/compliance.rha
http://www.sgcib.com. Copyright: The Société Générale Group 2009. All rights reserved.

Societe Generale Emerging Weekly

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Societe Generale Emerging Weekly

Uploaded by

Copyright:

Available Formats

11 December 2009

carry compression and less favourable current account 10

of the economic recession. We expect the UAH to weaken -10

Q How to play 2010 themes in CEEMEA local rates 8

(1) Differentiation: Receive PLN 5y IRS vs RUB 5y CCS. (2) Different

flattening: Enter a PLN 2s5s flattener around +80bp during H1 2010.

24.95, with a step at 25.35. Source: SG Cross Asset Research, IMF

Contents View and Trade Summary EM Research Team

Macro Commodities Forex Rates Equity Credit Derivatives

FX Views and Recommendations

Total P/L 0.72%

Total P/L 4.14%

FI Views and Recommendations

EUR 2s10s flattener vs PLN 2s10s

Receive PLN 3s5s7s standard barbell 12 Nov 25 bp 10 30 26 0 -1 0

* since last publication ** P/L calculated without carry ^ expires on 18 Dec 09

Events and data

Monday 14-Dec-2009 (GMT) Period Previous SG Forecast Consensus

Tuesday 15-Dec-2009 (GMT) Period Previous SG Forecast Consensus

Wednesday 16-Dec-2009 (GMT) Period Previous SG Forecast Consensus

Thursday 17-Dec-2009 (GMT) Period Previous SG Forecast Consensus

Monday 14-Dec-2009 (GMT) Period Previous SG Forecast Consensus

Tuesday 15-Dec-2009 (GMT) Period Previous SG Forecast Consensus

Wednesday 16-Dec-2009 (GMT) Period Previous SG Forecast Consensus

Thursday 17-Dec-2009 (GMT) Period Previous SG Forecast Consensus

Friday 18-Dec-2009 (GMT) Period Previous SG Forecast Consensus

Monday 14-Dec-2009 (GMT) Period Previous SG Forecast Consensus

Tuesday 15-Dec-2009 (GMT) Period Previous SG Forecast Consensus

Wednesday 16-Dec-2009 (GMT) Period Previous SG Forecast Consensus

Thursday 17-Dec-2009 (GMT) Period Previous SG Forecast Consensus

Friday 18-Dec-2009 (GMT) Period Previous SG Forecast Consensus

Source: SG Cross Asset Research, Komercni banka, Bloomberg

Central bank watch

A- Stable Poland 23 Dec 09 unchanged 3.50 No change in the coming months 2

Key rate bottoming at 6.50% in the next 3-6

A Stable Israel 28 Dec 09 25 1.00 We expect a 100bp hike in H1 2010 -11

First hike of 25bp in June, will tighten by

First hike of 50bp in Sep-10; total tightening

First hike of 25bp in June, we expect

First hike of 25bp in August, we expect

Rates will remain on hold into 2010. A hike in

BI left rates on-hold on Dec3. The message

Rates expected on-hold until 2010, BNM says

Rates remain on-hold. Comments from

Interest rates to remain on-hold until mid

Key Policy rates (%)

3m 1m fw d* (LHS) 3m 2m fw d* (LHS) 3m 3m fw d* (LHS) Current base rate (RHS)

market trends remain negative for household consumption

Graph 1. Rising REER -50

135 2005=100 -80

105  Less favourable current account developments ahead

Source: SG Cross Asset Research, Ecowin

 The financing issue persists. The massive contraction

2008, the current account will be balanced in 2009 and

 Presidential election on 17 January. The first round of Graph 8. No revival of credit

KZT: gradual appreciation Sources: SG Cross Asset Research, Ecowin

 Recovery ahead after a mild recession. The Kazakh

15 Graph 9. Current account balance to return to surplus

Sources: SG Cross Asset Research, Ecowin

4% of GDP next year. Oil price developments are key for

USD/KZT 147 145 145 145

Source: SG Cross Asset Research

EUR/CZK 1 week view Î 1 month view Ò

105 Less favourable current account developments ahead

The financing issue persists. The massive contraction

Presidential election on 17 January. The first round of Graph 8. No revival of credit

Recovery ahead after a mild recession. The Kazakh

Varying curve dynamics suggest selective flatteners