EFTA01459708

12 January 2016 FX Blueprint: Forever Young Theme #12: Burrito barato, pisco not sour - buy MXN/COP, PEN/CLP a Go long MXN/COP on fundamental divergence, greater Banxico management of currency volatility and the pair's undervaluation vs. oil. Go long PEN/CLP - the pair has reduced exposure to copper and BCRP's substantial FX reserves should ensure continued management of PEN and relative outperformance versus other commodity exporters in Let Am. Focus on heterogeneity As mentioned in our year-end outlook, we envision another difficult year for Lat Am FX in 2016. Besides the adjustment to a new external backdrop (with higher rates in the US and lower commodity prices), idiosyncratic problems including political uncertainty, high foreign ownership of domestic assets, fiscal woes, and inflation pressures should continue to weigh on the much battered asset class. That said, there are heterogeneities within the region as countries sit in different stages of the adjustment process. This provides in a good environment for relative value. We present two opportunities in the Let Am space that take advantage of the differences in policy making within the region while reducing outright exposure to further declines in commodities prices. Mispricing in the oil block: Long MXNFCOP (target: 205, stop:170 ref: 182 ) Traditionally not an oil exporter, MXN has still suffered from the fall in oil prices and the China-related increase in risk aversion. Adjustments in expectations on energy sector reforms and therefore prospective oil related FDI inflows, and the peso's use as a proxy hedge for other Let Am FX exposures are the two obvious culprits behind the recent move lower, which in our view has been exaggerated. Lower exposure to China and US related externalities should translate into lower volatility for the MXN. We also believe that a weaker peso could be harmful to the economy through the "financial stability" channel, justifying the rather "currency oriented" communiques adopted by Banxico. Going forward we envision two possible scenarios: further currency volatility management by Banxico in case "risk-off" continues, or a retracement to fundamentals if global volatility subs€des (MXN is undervalued on our fundamental metrics). In either case we see MXN trading at stronger levels versus other LatAm FX in the near future. Deutsche Bank AG/London Intra and inter-reg€onal valuation on out fundamental !BEER metric s1 10 $ 0 40 45 -20 % misalignment I undervalued igaitur-wranwmg tan Dean* eat 61coflorg brora LP IvIX621COP is undervalued vs. o€l i I f t32 iso 1 • g. it0 31 XX s1 42 4 4 4 x 52 84 %Ste 82 8.4 M 88 Taisra•I6Josal II sissZtt•teDiat. IACcti Al.Ie7e 'Nam SAM kithell00/204alatill1/4 0410202*1.1"40 San* Doural# 544 5144555.#15now• :P COP has greater exposure than MXN to further crude weakness Bebe ORI. t changes). FX vs Bost crude (1.40 crosses) 0.05 - 0.00 405 - 41.10 -0.15 -0.20 -025 - -0.30 436 - Nito.b.40,,A0.44.4,Avo.c.twetAel.t..eq. 5.strof Datisla• Sint Elacentn Anne lP Page 25 CONFIDENTIAL — PURSUANT TO FED. R. CRIM. P. 6(e) CONFIDENTIAL SDNY_GM_00266529 DB-SDNY-0120345 EFTA01459708