Trading Fixed Income and FX in Emerging Markets: A Practitioner's Guide

by Dirk Willer, Ram Bala Chandran, Kenneth Lam

A practitioner's guide to finding alpha in fixed income trading in emerging markets Emerging fixed income markets are both large and fast growing. China, currently the second largest economy in the world, is predicted to overtake the United States by 2030. Chinese fixed income markets are worth more than $11 trillion USD and are being added to global fixed income indices starting in 2019. Access for foreigners to the Indian fixed income market, valued at almost 1trn USD, is also becoming easier – a trend repeated in emerging markets around the world. The move to include large Emerging Market (EM) fixed income markets into non-EM benchmarks requires non-EM specialists to understand EM fixed income. Trading Fixed Income in Emerging Markets examines the principle drivers for EM fixed income investing. This timely guide suggests a more systematic approach to EM fixed income trading with a focus on practical trading rules on how to generate alpha, assisting EM practitioners to limit market-share losses to passive investment vehicles.  The definitive text on trading EM fixed income, this book is heavily data-driven – every trading rule is thoroughly back-tested over the last 10+ years. Case studies help readers identify and benefit from market regularities, while discussions of the business cycle and typical EM events inform and optimise trading strategies. Topics include portfolio construction, how to apply ESG principles to EM and the future of EM investing in the realm of Big Data and machine learning. Written by practitioners for practitioners, this book: The first book of its kind, Trading Fixed Income in Emerging Markets: A Practitioner’s Guide is an indispensable resource for EM fund managers, analysts and strategists, sell-side professionals in EM and non-EM specialists considering activity in emerging markets.

272 pages, Hardcover

Published October 26, 2020

Reviews

[Nikola Bakic · Rating 4 out of 5]

From my perspective as an EM debt markets practitioner, this is a very good book with some great insights on best way to trade and invest in EM credit, rates and FX. The authors are very well know in the global EM debt markets with strong quant background. Unsurprisingly, they use a lot of data which they present in the book in the form of charts, figures and tables to support their conclusions and findings. My main objection to the book is that they don't go into enough detail on some of the calculations they do when analysing certain aspects of EM debt trading. It would have been helpful to have had that cause without that some of the charts and figures can seem somewhat confusing and it takes time to absorb the point the authors were making. This is perhaps the main reason why the book doesn't get 5 start from me. On all other aspects the book is truly excellent. I would recommend it to all EM debt practitioners from both buy side and sell side, as well as those aspiring to learn more about investing in EM debt or looking to join this niche, but fast growing part of global debt markets.

One of my main takeaways of the book is that trading EM debt is all about the global business/credit cycle and increasingly - China. The authors firmly believe and demonstrate that the structural EM trade dead. In other words, there is no structural compression of credit spreads between EM and DM. Thus instead of being long term long EM, the investors should actively trade the US, China and global credit cycle and position around key turning points in global financing conditions, G3 monetary and fiscal policies and in some key economic and market indicators like ISM, VIX, UST rates, commodity prices etc. I found those arguments supported by a heap of data quite convincing.

When it comes to the rest of the book content, it takes the reader through global macro rules for trading EM debt, increasing impact of China and its economy on broader EM complex and implications for EM debt investors, and many very relevant and interesting insights and rules on trading EMFX, EM rates, EM credit. The final two chapters I did't find all that relevant as they just scratch the surface on topics on some major new developments in the global investment arena like AI, machine learnings, ESG and how that applies to EM. I found those parts somehow slim and unconvincing.

All in all, this is a great book that has made me a better informed and knowledgeable EM practitioner and I definitely plan to revisit/reread this book again later this year.

[Lorenzo Carrieri · Rating 5 out of 5]

A must read for practitioners and PM/traders/analysts working on EM world. Spot on and detailed across major asset classes, with data reference and enlightening ideas. The chapters on China and macro drivers are consistent and thorough, further, those on EMFX, rates and EM credit are full of interesting insights. Great essay written by accomplished professionals in the field of EM.