Euro2day – Hedge funds are piling into emerging markets. In the past year alone, they have more than tripled their trading in emerging market bonds and now account for 45 per cent of annual volumes, according to research conducted by Greenwich Associates, the consultancy.
The dramatic rise in hedge funds’ activity “reflects their increasing geographic diversification as they seek out market inefficiencies and arbitrage opportunities”, according to Greenwich’s Woody Canaday.
Patrick Holt, the head of Deutsche Bank’s emerging market and credit hedge funds sales in Europe, agrees: “Hedge funds provide a significant amount of liquidity to the market.”
As well as diversifying geographically, the funds are also broadening their investments into new financial instruments.
“The involvement of hedge funds has grown significantly in all sectors of the asset class,” Mr Holt says. “It used to be that they were just in external debt and the currency market, but now they are expressing their views in the emerging markets through corporate debt, credit derivatives and local market products.”
