From Bank of America-Merrill Lynch:
China Aftermath – The long-overdue CNY devaluation last week triggered EM more capitulation but mixed flows in G10. Asia FX dominated flows with hedge funds selling INR, KRW, SGD and TWD and Real Money selling CNY, KRW, IDR and TWD. EM positioning is very short and market overreaction to last week’s events could offer opportunities. However our Strategy team believe it is too early to buy just yet given that we expect further CNY weakening (our end-2015 and end-2016 now stand at 6.5 (6.33 prev.) and 6.9 (6.5 prev.) respectively.
In G10 we saw offsetting investor flows. Hedge Funds bought both USD and EUR but Real Money bought EUR and sold USD. Hedge Funds began to take profit in short CAD positions and cut long GBP positions. We see risks for a GBP correction lower despite the BoE’s more bullish tone.
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