Trading Emerging Market Currencies

1
Trading Emerging Market Currencies
Peter A. Rosenstreich,
January 12th, 2006
2
EM Definition

• Early Stage of Economic Development
• Young or New Government
• Unstable Political and/or Social System
• Restricted Market Economy
• Concentrated Economies
• Equity and Debt Market Illiquid and
  Nontransparent

Broad Usage
1
2
3
4
5
6
3
EM County Analysis
Growth of the underlying economies is critical to
determine the growth of the country and therefore
movement of the currency.
4
EM County Considerations
1
1

• Demographic Fundamentals
• Rising Education Rates
• Labor Cost and Condition
• Stability of Political System
• Infrastructure
• Access and Integration of technology
• Stable Inflation rates
• Privatization
• Deregulations of Financial Markets

2
3
4
5
6
7
8
9
5
EM County Risks
Political Instability High Levels of Foreign
Debt Trade Wars and/or Trade Restrictions Lopsided
Economic Development Inadequate Regulatory
oversight of Investment Markets Lack of
Transparency and Liquidity
1
2
3
4
5
6
6
Monetary Policy

• China Managed Float / Fixed
• Czech Republic Floating since 1997
• Hong Kong Managed Float at 7.8 HK per USD
• Hungry Free Float since 2001
• India Managed Float since 2000
• Korea Free Float
• Poland Free Float since 2000
• Mexico Free Float since 1994
• Singapore Managed against weighted index
• South Africa Free Float
• Thailand Free Float with restrictions
• Turkey Free Float since 2001
• Columbia Managed Float
• Israel Managed Float tided to a basket
• Indonesia Free Float

7
Opportunities in EM Currencies
8
US / Brazil
9
US / South Korea
10
EM Forex Risk
1

• Illiquidity
• Volatility
• Reduced Transparency
• Limited derivatives (forwards, options etc)
• Capital Control
• Heightened Carry Risk
• Price Distortion and Lack of Price Discovery

2
3
4
5
6
7
11
Hybrid Trading
Fundamentals Technical
Fundamental Realities
New Developments
Basic Technicals