The Definitive Guide to Emerging Market Currencies

The Definitive Guide to Emerging Market Currencies:

How to Get Started Making Money Through Trading the World’s Most Dynamic FOREX Markets

By: Nicholas Pardini

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Smashwords Edition

Copyright © 2013 by Nicholas Pardini.

Smashwords Edition, License Notes

This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each recipient. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then please return to Smashwords.com and purchase your own copy. Thank you for respecting the hard work of this author.

About the Author:

Nicholas Pardini is the founder and managing partner of the long/short hedge fund Nomadic Capital Partners that specializes in investing in emerging and frontier markets across the globe. Prior to that, he worked as a proprietary trader for Wedbush Securities.

Nicholas publishes his analysis on emerging markets and FOREX markets on leading media outlets such as Seeking Alpha, Zero Hedge, and the USA Today while making television appearances on CBS, CCTV, and NHK Japan. His own website, Emerging Market Insider is the leading source of the best investment opportunities in emerging and frontier markets not listed on US based exchanges. He has split his time with Nomadic Capital Partners living in Singapore and Newport Beach, CA.

Table of Contents:

About the Author

Part 1: General Emerging Currency Facts

Chapter 1: Why Trade Emerging Currencies?

Chapter 2: General Drivers of FOREX Markets

Chapter 3: Key Facts and How to Trade Emerging Currencies

Part 2: Specific Currency Commentary

Chapter 4: Chinese Currencies (RMB and HK Dollar)

-- Chinese Renminbi

-- Is the Hong Kong Dollar worth trading?

Chapter 5: East Asian Currencies

-- Korean Won

-- New Taiwan Dollar

Chapter 6: ASEAN Currencies

-- Singapore Dollar

-- Thai Baht

-- Malaysian Ringgit

-- Indonesian Rupiah

-- Philippine Peso

Chapter 7: Indian Subcontinent Currencies

-- Indian Rupee

-- Other South Asian Currencies

Chapter 8: Emerging Currencies in the Middle East

-- Gulf States Currencies

-- Turkish New Lira

-- Israeli New Shekel

Chapter 9: Africa and the South African Rand

-- South African Rand

Chapter 10: Eastern European Currencies

-- Russian Ruble

-- Polish Zloty

-- Czech Koruna

Chapter 11: Latin American Currencies:

-- Brazilian Real

-- Mexican Peso

-- Argentine Peso

-- Colombian Peso

-- Peruvian Nuevo Sol

-- Chilean Peso

Conclusion

Appendix 1: Emerging Market Currency Ticker Symbols

Appendix 2: Most Liquid Hours to Trade Emerging Currencies

Appendix 3: Good Sources for Further Research

Nomadic Emerging Opportunities Newsletter:

Works Cited

Footnotes

Part 1: General Emerging Currency Facts

In this first part of the book, I explain the importance of emerging currencies, their growing role in the global economy, and the importance of trading them directly. Throughout the rest of the book, the fundamental drivers for emerging currencies and specific country breakdowns will help traders understand how these currencies move and where to find trading opportunities in exotic currencies around the world. However, before getting into that, we need to cover the fundamentals of the FOREX markets as a whole.

Chapter 1: Why Trade Emerging Currencies?

By reading this book, traders and investors can gain an edge in what will be one of the most dynamic markets of the twenty-first century. The investment community is slowly recognizing the importance investing in emerging markets through massive foreign capital flows into emerging market equities and bonds. Currencies in emerging markets, on the other hand, are largely ignored by both individual and institutional investors. The fact that is the only substantial book written on this subject within the past fifteen years shows how under looked this market is. This lack of attention in the market allows early traders in these markets to build a competitive advantage before emerging market currencies become another Wall Street fad. With global capital flows shifting from heavily indebted developed nations to high growth emerging markets, and barriers to entry for retail investors being removed to by free trade and technology, now is the time to trade and invest exotic currency pairs.

As you are reading this book, it will go step by step on how investors should access and research these currency pairs. The beginning of the book covers the basics on how the fundamental drivers of currency markets as a whole, the case for investing out of the majors into emerging market currencies, and how investors can go about doing this.

The remainder of the book goes into detail about each of the emerging market currencies themselves. Factors such as the country’s economic composition, monetary history, and current fundamental drivers are explained to help create a better understanding of the valuation of emerging currencies along with my expected future outlook for each tradable currency. In the back of the book, we have several reference pages that will assist you throughout your career trading emerging currencies.

What is an emerging currency and how do they differ from trading a EUR/USD pair? An emerging (also known as exotic) currency is a currency that is classified outside of the most commonly traded major currencies. The major currencies of the US dollar, Euro, British Pound, Swiss Franc, Japanese Yen, Australian dollar, and Canadian dollar. Other significantly traded developed market currencies not covered in this book include the Swedish Kroner and New Zealand dollar. Examples of emerging currencies include the Chinese renminbi, Brazilian real, Thai baht, Singapore dollar, Indian rupee, and many others. Unlike the major currency pairs, their circulation is not as widespread outside of their national borders. Some emerging currencies have capital controls that restrict movement to the point that they are not convertible offshore.

Emerging currencies offer opportunities for traders and investors due to the improving economic fundamentals of emerging markets, open currency debasement amongst Western central banks, and higher real interest rates in emerging market nations. Record low yields in the US, Japan, and the Eurozone are causing capital flight into other currencies that offer a better store of value or return on savings. This trend has clearly been indicated through the declining percentage of the US dollar in global foreign reserves. From 1999-2012, the percentage of foreign reserves has shrunk from 72% to 60% of foreign reserves, whereas emerging currencies share of global reserves have more than tripled since 2000 from 1.6% to 5.3% of foreign reserves. The charts below graphically highlight the speed of these changes over the past fourteen years. I expect this trend to continue as emerging market economies consist of 38% of global GDP, and foreign reserves have a while to catch up to this shift in the balance of the global economy.

With more reward potential in emerging currencies also come more risks. The main risk is in the form of reduced liquidity[1]. The degree that banks and brokerages hold currency reserves markedly influences the liquidity of a currency. Trade policies also affect currency liquidity. Countries with freer trade policies tend to be more liquid due to greater demand for