22 Jan 2015
Best risk-reward trades in case ECB disappoints – BAML
FXStreet (Barcelona) - The Bank of America-Merrill Lynch Team believe that FX hedged long Asia bonds might be the best trade in case ECB disappoints.
Key Quotes
“Given that a “big” QE has largely been priced into the market, it obviously makes sense, from a risk-reward perspective, to position tactically for the scenarios where the ECB could disappoint.”
“We believe long Asia bonds (Korea, India, Indonesia, and Thailand) FX hedged is the best way to express this disappointment.”
“In FX, we believe a worst of basket (KRW, INR, and MYR) would be appropriate. Within the region, long high yielders/oil beneficiaries (INR and IDR) against MYR would be one way to position for this.”
“In expressing our views under each of these scenarios, we have not included the “Greece” factor. Obviously the wild card here will be the stance taken by the new Greece government (most likely a Syriza-led government).”
Key Quotes
“Given that a “big” QE has largely been priced into the market, it obviously makes sense, from a risk-reward perspective, to position tactically for the scenarios where the ECB could disappoint.”
“We believe long Asia bonds (Korea, India, Indonesia, and Thailand) FX hedged is the best way to express this disappointment.”
“In FX, we believe a worst of basket (KRW, INR, and MYR) would be appropriate. Within the region, long high yielders/oil beneficiaries (INR and IDR) against MYR would be one way to position for this.”
“In expressing our views under each of these scenarios, we have not included the “Greece” factor. Obviously the wild card here will be the stance taken by the new Greece government (most likely a Syriza-led government).”