The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Capital Markets

New breed bets on emerging markets

New tools such as credit default swaps and index products have changed the ground rules of hedge fund activity in emerging markets. They are paying off now but will sophisticated pricing and technology be able to cope with the next emerging-market debt crisis?

HEDGE FUNDS HAVE not, in aggregate, done well in emerging markets. When times are good they can make money trading in and out of positions, but when times are bad they can blow up spectacularly – the prime example being the Russian default in 1998.

Today, however, times are good, and the hedge funds are back in the emerging-market asset class with a vengeance. Volumes are reaching levels not seen since 1997, and a whole new asset class – credit derivatives – has given market participants the ability to make the kind of trades they could only have dreamt of a few years ago.

A new breed of hedge fund is active in the market today: old-school funds like Soros and Tiger would make large directional bets but nowadays relative-value trades are more fashionable. All the same, says Steve Kenny, a trader at UBS in Stamford, "hedge funds and prop desks are driving the market on a day-to-day basis".

We've been here before: the last time the market looked like this the crises in Asia, Russia and Brazil devastated leveraged investors and panicked them into a rush to safety. This time they seem to be more prepared.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree