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.

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.

Trading on Britannia in the new millennium

On returning to London last week from India, a market structure consultant compared the London Stock Exchange’s approach to developing its relationships with younger exchanges in emerging markets with the British East India Company, famously the commercial arm of British colonialism in the 17th-19th centuries.

Ferber fever strikes TradeTech

If Markus Ferber’s ears were burning last week, no one who attended TradeTech Europe 2012 would have been surprised.

A timely boost to confidence

“Focusing on one economic indicator is a guaranteed way to lose money,” a senior bank economist told me recently, when I asked him what weight should be given to the myriad statistical data released being dissected for signs of economic growth, or – failing that – life.


Clouds gather over HFT

Are high-frequency traders taking flight, hounded out of European and US equity markets by message charges, tougher scrutiny and a general air of suspicion? The witch hunt may be in full cry, but sometimes convincing evidence of a change in behaviour is slow to coalesce – even in the world of low-latency trading.

The deepest harbours hold the darkest pools

A sea change is brewing in Victoria Harbour but which way is the tide turning? Mention dark pools to the entirely affable Charles Li and his voice will quiet and grow solemn as he tells you that while not yet a danger to the bourse of which he is chief executive, they could certainly be so in the future

Too much information

As market structures across different assets begin to converge due to regulatory pressure, will the buy-side take a more active role in the investment process?

Social networking for exchanges

Primary exchanges around the world that fail to meet the needs of institutional investors face an increasing risk of disintermediation by newer, smarter platforms that do.

Lost in the supermarket

The economics of the fixed income and OTC derivatives markets are being turned upside down. The result could be a reduction in choice and a radical change in supply-side logistics and demand-side shopping habits.