Finding your niche

As global equities become more and more correlated, the role of emerging markets in the average investment portfolio is becoming increasingly important for driving alpha.

Through working on the forthcoming issue of The TRADE Growth Markets, due to be published in June, a number of issues relating to the continued growth and popularity of emerging markets have become apparent.

While once British and American portfolio managers were content to mine various sectors in their own economies and were often reticent to look too far from home, the dramatic growth now required by pension funds is fuelling further interest in foreign climes which can no longer be ignored.

And the increasing interconnectedness of the globe is making a more geographically-diverse portfolio an increasingly easier goal to achieve. FIX is enjoying the wider international connectivity it deserves, in turn encouraging greater levels of electronic trading in developing markets.

“From Santiago to Istanbul to Singapore, the market structure is changing,” he says. “Technology is simplifying and automating the trading process. Once you have the tools to trade a market, it’s a virtuous circle,” says Philippe Carré, global head of connectivity at financial technology provider SunGard.

Niche local research firms are providing PMs on the other side of the planet with a view on the ground.

Less driven by the fierce protectionism of days gone by, domestic exchanges are increasingly looking to attract the global investor. Alternate block trading and dark venues are internationalising flow in ways familiar to European and American investors.

According to Andrea Ferancova, partner at Prague-based investment bank Wood & Company, the Warsaw Stock Exchange has taken steps to transform into a “western-style bourse”.

“For Western firms, the changes may not seem like anything new but they bring the exchanges in line with the more mature markets,” she told The TRADE Growth Markets. “Clients are looking for additional services such as algo trading and opportunities for arbitrage of dual-listed companies. The region’s systems are changing to help facilitate these activities.”

Such interconnectivity of markets is placing more and more demands on the role of the trader and putting the desk head in the centre of the action.

Yet don’t be lulled into a false sense of security. Just because global markets are becoming easier to access doesn’t mean trading them well is necessarily a no-brainer and the pressures on the trading desk are heavier than they’ve ever been.

Late last century, when globalisation became a buzzword, many linguists and sociologists worried the phenomena and the resulting increasing dominance of the English language as the language of communication on a global scale would lead to the extinction of other languages and cultures. In fact, researchers have noted that while western predominance is homogenising certain levels of global interaction, a strong counterweight of localisation is also taking place. It seems language fragmentation is actually increasing and local culture and tradition is becoming more important to the participants.

For traders, the idea of technology and globalisation bringing increased fragmentation is nothing new – it’s what we’ve experienced with liquidity. But it does underline the point that as the interconnectivity of markets increases, local knowledge and relationships become more – not less – important.

Bruce Love+44 (0)20 7397 3818bruce.love@thetrade.ltd.uk