Buy Side Confident on LatAm10.07.2011
In Latin America, it’s a story of rule of law, hedging, and China.
The spotlight is on emerging markets. Many buy side investors are confident that as the mature markets struggle to regain economic footing, that emerging markets is a breeding ground for opportunity.
For emerging markets alternative hedge funds, China is among the primary targeted emerging market economies. Yet, market sentiment about a “hard landing”—or slowing of economic growth from recent rates of nine percent.
Foreboding news on China may highlight Latin America as an attractive choice for investors, according to Tulio Vera, chief strategist and head of client relations at Bladex Asset Management.
Bladex is a multi-asset manager that specializes in providing investment advisory services to accredited investors. The firm is under the Bladex supranational bank, an established Latin American bank.
“In world fueled by low rates, monies gravitate toward emerging markets, because that’s where the opportunities are,” Vera noted. “Developed economies are in a liquidity trap, and they’ve had a hard time stimulating their economy. Their fiscal side is exhausted. I’ve never seen Latin America in such good shape.”
The developed economies’ struggle present opportunities for hedge fund investors to gain, via hedging, said Vera. “Though the European crisis is less important for Latin American, than China, we’re used Europe as a hedge this year, while we’ve been long Latin American and it’s worked for pretty much the whole year.”
“Self liquidating trades” will be a winning strategy for Latin American investors, or trades that will eventually earn profits that exceed their initial outlay, according to Vera, who is a proponent of using one-year credit default swaps to initiate such a trade.
Hedge fund Skybridge Capital managing partner Anthony Scaramucci voiced his preference for Latin America’s respect for corporate governance, intellectual property law, both of which are lacking in China.
“If you’re a creative genius, it might be almost impossible for someone to start a business in China without the fear it’ll be immediately knocked off,” said Scaramucci.
Scaramucci also cited booming demographics, citing a healthy labor force in countries such as Brazil.
With Zoe Zhang and Richard Knight, Execution Quant Group, CLSA
The transactions create a strong benchmark for the onshore green repo market in China.
China will allow PCAOB inspections and investigations meeting U.S. standards.
Trading can take place on all days when both Hong Kong and Mainland China markets are open.