WM April

TECHNOLOGY TRENDZ | Quants

To say mathematicians have fastened Reasons For Using Algorithms
their grip on the financial world over
the last decade in a manner unlike
before would not be too far away from
the truth. The rise of quantitative trading 8.10% 2.20% 10.40%
bears witness to the growing inclination Internal Match Trader
of finance towards technology and data. crossing pre-trade productivity
Aided by the increased demand for speed, estimates
algorithm development, the core of quant
trading, is driving limitless possibilities
within the field of trading. 11.30%
Reduced
“Quant traders basically use quantitative market impact
analysis (Analysis on historical data to
find relationships) to set up mathematical 16.30%
Ease of use

algorithms that tries to capture trends or Source: The 2015 Algorithmic Trading Survey
mispricing between different securities
in order to generate a profit,”Yacoub
Husein Nuseibeh, CFA, CQF, member at 4.70% 8.60%
CFA Society Emirates elaborates. One of Customisation Execution
the drivers of quant trading strategies in consistency

recent years has been the emergence of
High Frequency Trading (HFT). Making
use of complex algorithms to analyze the 12.50% 8.60%
markets, it is able to spot emerging trends Price Commission
in a fraction of a second. Blamed for the
6th May 2010 flash-crash on account of improvement Rates
4.30%
exacerbating price declines, this strategy Speed

has bought to the fore arguments 13%
including demands for regulation and Anonymity
unfair advantage larger firms possess.
Yacoub prefers to look at this in a more
mature manner highlighting that financial What is Quantitative Trading?
markets are ultimately out there to make Put simply, a quantitative trading strategy makes use of computer software programs
profit; using an advanced algorithm in developed to track patterns or trends in an asset class. These trends may be a product of
trading, fundamental research or technical the price, the volume and/ or frequency at which it is traded. By involving the computer
analysis – provide the markets with depth in the same, quant traders aim to take much of the human element out of investment
involving divergent term views as well as decisions.

different insights. Thus, enabling greater patterns in a stock which get overseen by forget that economics and finance is not
efficiency in the system. humans is driving this behavior. science like physics because humans run
governments, banks, companies, etc….
A trend worth highlighting here is However, it is prudent to highlight here and humans do not necessarily behave in
the appeal quant trading strategies that markets today are reflecting shorter fixed laws patterns, hence Quants can lose
are seeing with the retail investor. With cycles than before. While the complex money like any traders or investors.”
an aim to minimize the human bias in quant strategies may display success,
the investing process, giving into fears In conclusion, quantitative trading is

One of the drivers of quant trading strategies here to stay and, going ahead, is bound to
in recent years has been the emergence of HFT
see a continued degree of focus in terms
of development. With the focus of trading
primarily continues to remain on how to

stemming from the 2008 crisis, there is over dependence on the computer could optimally execute trades, quant offers a 49
a growing segment within this category spell disaster and thus needs to be used platform integrating a myriad of market
which is venturing out to try their hand judiciously. As Yacoub outlines, “‘No one details and using that information to effect
at DIY algo-trading platforms. As an can predict the future, so the best guess trades in time frames, beyond the human
example, a very basic algorithm involves is usually what happened in the past. capacity. At the same time, it is expected
- If volume in a particular stock hits Some quants will be more successful than to continue to invite the vigil of market
100,000 and the 50-day moving average others. However I do not believe that watchmen and observers who view the
of the stock price crosses above the they will consistently generate profits role of computers in the overall investing

100-day moving average, buy 100 shares. all the time, because these relationships process as one that needs to be exercised

The appeal of the system identifying can change and they often do. Let’s not with a human touch.

April 2016 | www.wealth-monitor.com

MASTERING THE MARKETS | Smart Beta

Smart beta investing tries for an optimal balance between
passive cap-weighted strategies and active strategies.
But how really smart this strategy is?

50

www.wealth-monitor.com | April 2016

MASTERING THE MARKETS | Smart Beta

Broadly, smart beta can be diversified by not being excessively potential to enhance investment results. It can
defined as an umbrella concept concentrated in a particular country, offer incremental returns, reduce risk as well as
for rule-based investment sector or security. costs while improving transparency. Investors
strategy or strategies that don’t use stand to gain from inclusion of smart beta in
the traditional market capitalization A number of smart beta strategies the portfolio.
weightings which are often criticized are relatively new and have not
for giving sub-optimal returns by undergone a test of efficiency. It is To conclude, higher return is not the
giving greater weight to overvalued therefore critical that these strategies motive around which the concept of smart
stocks and thereby underweighting the are put to use by portfolio managers beta revolves. The key driver is the desire to
undervalued stocks. having an understanding of the wider diversify and have a better risk reward ratio.
implications. It is the resultant balancing One of the arguments for smart beta strategies
The interest in smart beta was of cost, risk and return that together such as equal weighted indexing is that they
triggered after the global financial crisis ensures that an investor’s return remove the emphasis on the stocks in the
during 2007-08, prompting investors matches the intended outcome of the index with largest market cap weightings.
to focus more on controlling risks than strategy. The manager should stand When these stocks underperform, they will
just strive for maximization of return. as an extra line of protection for smart have a sizable impact on the performance of
It also reflects the changing trends beta investors. the index relative to the smallest components
in the world of investment. Over the of the index, says Investopedia.
years, investors increasingly opted for World’s largest asset management
index investment owing to its inherent firm BlackRock states that smart beta Did You know??
transparency, lower fees, consistency strategies seek to capture broad,
and passive management. But the persistent drivers of returns. Combining • Smart beta emphasizes
interest in non-market cap index elements of both traditional passive and capturing market
increased after investors took major traditional active investing, smart beta inefficiencies in a rules-
setbacks in large caps during dot com strategies seek to outperform traditional based and transparent way
crash. index strategies by targeting intuitive
and well understood investment ideas • Diversification happens to be
According to Investopedia, smart in a rule based manner. a key criterion in case of a
beta defines a set of investment smart beta portfolio
strategies that emphasize the use of “By combining characteristics of
alternative index construction rules both passive and active investing, smart • A number of smart beta
to traditional market capitalization beta strategies allow investors to retain strategies are relatively new
based indices. Smart beta emphasizes many benefits of passive strategies
capturing investment factors or while seeking improved returns or • The application of smart
market inefficiencies in a rules-based reduced risk. Smart beta is not simply beta beyond equities is in a
and transparent way. The increased a fund or strategy—it’s a different state of infancy
popularity of smart beta is linked to a way of thinking about investing
desire for portfolio risk management beyond traditional active and passive 51
and diversification along factor management”, says Sara Shores, global
dimensions as well as seeking to head of smart beta at BlackRock.
enhance risk-adjusted returns above
cap-weighted indices. There is a proliferation of equity
related smart beta strategies and
Diversification happens to be a resultant wide options for investors. The
key criterion in case of a smart beta role of asset managers and consultants
portfolio along with other dimensions. turn critical here and they are being
In the first place, smart beta approach increasingly called upon to sort the
should help identify factors or themes meaningful from the meaningless ones.
which are ignored and not well A smart beta investment strategy is
captured in primary asset classes, developed based on the goals of the
thereby offering diversification to investor, which usually is varied.
investors. In the same manner, while
seeking smart beta factors we should The application of smart beta
look for ideas that have not been beyond equities is in a state of infancy.
captured. Further, a smart beta strategy However, the next category of smart
should on its own be sufficiently beta could likely find application in
fixed income, multi-asset solution as
well as in alternatives. Smart beta has a

April 2016 | www.wealth-monitor.com

DASHBOARD

DASHBOARD

The Dashboard section gives insight into a whole lot of regional and global financial
transactions including, but not limited to, IPOs, M&As, corporate earnings, banking,
private equity & venture capital deals, Sukuk issuance, crowdfunding deals, investment
patterns, sovereign wealth fund deals, among others. In this issue, Wealth Monitor gives

a summary of Dubai debt market.

5522 Markets in Numbers P.53

Tradepedia Analysis

The Next Step Forward P.54

Dubai Debt Market

www.wealth-monitor.com | April 2016

DASHBOARD

Markets in Numbers

Volume Shockers Index Watch

Stocks that went up/down massively in volume terms (%) (Y T%DCYh)TaDnge
DFMGI

METLIFE AIG ANB -8.72%
74 57.2 9 % -0.66%
SRMG
2 3 4 .3 3 % 3.57%
SPPC -2.33%
18 5.9 3 % -5.18%
-6.64%

DEYAAR ADSB ADI QE
3 9 2 .14 % 179 74 .0 0 % TASI BASI
EKTTITAB.DFM BOS
3 8 7.73 % 2 2 57.6 0 % KSE
SALAMA.DFM ADCB
3 6 0 .4 7% 78 4 .9 6 % ZHCD Key Events to Watch For
573 .0 0 %
IQCD
2 9 4 .6 0 %
QEWS
2 0 2 .2 7%

GULFNAV JULPHAR SVCP MCCS Date Currency Data
-96.42% -99.52% -97.32% -95.20% Caixin Manufacturing PMI
ASMAK QGMD Apr 1 CNY
SALAM.DFM -94.02% CARE -84.56% Non-Farm Employment Change
-93.27% AGTHIA -93.80% Apr 4 USD Unemployment Rate
-91.29% QGTS Apr 5 USD Construction PMI
AJMAN BANK ARNB -76.77% Apr 8 GBP Services PMI
-91.86% -93.70% Apr 13 GBP Manufacturing Production m/m
Apr 14 GBP Unemployment Rate
DFM Abu Dhabi TASI Qatar Apr 15 CAD Unemployment Rate
Apr 19 AUD Crude Oil Inventories
Buzzing Stocks Apr 20 USD Monetary Policy Summary
Apr 21 GBP Unemployment Claims
Stocks that saw the highest rise/fall in % change of price during the month Apr 22 USD Industrial Production y/y
Apr 27 CNY Monetary Policy Meeting Minutes
Source: Tradepedia: Data as on March 29, 2016 ARTC AUD Average Earnings Index 3m/y
29.37% Apr 28 GBP Retail Sales m/m
CBD Apr 29 GBP Unemployment Claims
29.17% USD Core CPI m/m
SHUAA CAD Monetary Policy Statement
24.70% JPY BOJ Press Conference
DHAFRA JPY FOMC Statement
42.05% USD Federal Funds Rate
METHAQ USD
29.41% USD Unemployment Claims
AKIC JPY BOJ Outlook Report
21.43%
WAFA Insurance
100.29%
ZAIN.KSA
41.20%
GULF UNION
37.44%
DBIS
44.62%
GWCS
36.96%
NLCS
33.33%

DFM Abu Dhabi TASI Qatar

IFA.DFM 5533
-20.81%

NCC
-17.14%
ALSALAMSUDAN
-11.32%

GCIC
-33.87%

FBI
-23.98%

UAB
-20.63%
METLIFE AIG ANB
-25.64%

JARIR
-14.75%

HB
-11.90%

DHBK
-13.10%

UDCD
-12.05%

QIMD
-5.53%

cAAonmypmorpieilnn2tioa0nrys1,an6nedw|dswo, reewssnewoartc.cwho,naesnataitlluytstheis-,inmpvreicosetnsm, oietnrotoatrh.dcevroicinemfoorrma saotiloicnitcaotinotnaitnoebduiyn these reports or any other material provided by Tradepedia LLC. is provided as general market or
invest based solely on this information. or sell. This info does not take into account your personal circumstances so please do not trade

DASHBOARD | Dubai Debt Market

The Next Step

Forward

The UAE remains the largest bond market in the GCC in terms of issuance with around USD 19 billion of new bond issuances in 2013,
representing a 41% market share of total new issuances in the GCC. In addition, Dubai accounted for about 72% of the total bond
issuances in the UAE in 2014 and has become the world leader in the Islamic bond industry overcoming other Islamic debt markets
with a $36.7 billion nominal value of listed Sukuk in 2014. Nevertheless, the UAE lags behind other GCC countries in terms of total debt
issuances (rather than bond issuance only) given that the central bank of UAE does not currently issue other type of debt products,
such as treasury bills, notes and Sukuk denominated in local currencies.

Bond issuance by entity type in the UAE Bond issuances in
Dubai by sector in 2013

37% 36% 35% 35% 74% 26%
32% 33% 26%
Banks and Government
27% 26% DIFC corporates
and GREs

4% 5% 4%

Q4 2014 Q1 2015 Q2 2015 Issuances in

Sovereign bonds Banks Other financial corporations Non-financial corporations Dubai by currency

0.2% 58.8%

Issuances in Dubai represented about 72% of total bond issuances in the UAE in 2014, 2.1%
of which issuances by banks and DIFC corporates comprised approximately 74% as
opposed to 26% issuances by the Government and GREs. Moreover, approximately 58% 17.0%
of these new issuances were denominated in USD followed by CHF (22%) and EUR
21.9%
54 (17%), while the issuances in AED represented just 0.2% of the total debt issuances.

www.weUaSlDth-moCnHiFtor.coEUmR| AprAilE2D016 Other

DASHBOARD | Dubai Debt Market

The chart below summarize how Dubai ranks against the benchmark markets under the three main areas of product innovation,
infrastructure and regulatory framework. Dubai’s conventional debt market is more mature compared to its regional neighbours, Riyadh
and Manama in the areas of product innovation and infrastructure. Compared to more developed cities, such as New York, London,
Singapore and Hong Kong, Dubai is less developed with regards to the use of derivatives and green bonds, an effective benchmark yield
curve is under-developed, and the registration and approval process for bond issuances is relatively longer. Dubai ranks on par with New
York, London, Singapore and Hong Kong, with regards to the use of covered bonds and the supporting regulatory framework, it ranks
higher than New York and Singapore.

DaRteagbiasGtsoreavtfeoiorCrnnBRilmneeeaafegnnoPrInucdrinrnmthlTovaagbrmedatpaoaCsotupIdatinnnrocIorrioGyndndCfokvtnrrvgfvreDriadsypeerdneareispaeerseeeidnltsorrmltndplaioriicdottlvvurteevebblraaorfoccamwcoaoobttcustttiitrnnaoevvueuiirimoonddsevesrnrrnnkgeeeesssssst Conventional debt market benchmarking

Dubai New York London Singapore Hong Kong Riyadh Manama

Well developed Adequate Underdeveloped Not available* Source: ‘Developing Dubai’s debt market to promote investment and growth’, a report by Deloi e in association with Dubai Economic Council. *product not used

In terms of maturity of the Islamic debt market Malaysia is the most developed, whilst Dubai ranks on par with Riyadh and Doha with
regards to product innovation, supporting infrastructure and the regulatory framework. In addition, London and Kuala Lumpur have a
more developed dispute resolution and bankruptcy regulatory framework when compared to Dubai.

Islamic debt market benchmarkingDispSuPhtareirmriaeaS’SasrhoePycalcrousriomamtianilSoe’apadhnsrlabiyaaoaroroynfniaafftSSdr’aeRrduuberckektiapnouugonPugmkukokrrlcotttrvpaooruhedtlaipoarrruaIdseentrsnciceGyttnefttaayergfriaadiirenrllsgspaeeeiintnntrrmlganaoerivvuvnuteeveeSafldcamwaossutatttttirkovueioorimooudernrrrnnkekssssstDubai Kuala Lumpur RiyadhDohaLondon Manama

Well developed Adequate Underdeveloped Not available 55

The introduction of derivatives on Dubai’s exchanges (e.g. interest rate swaps, Government bond forwards and currency exchange swaps)
may help support risk management and increase market liquidity. To be in line with the more developed markets of London and New York,
Dubai may wish to consider shortening the se lement cycle for Government bonds thereby providing the stimulus for increased activity
levels through faster execution and reduced se lement risk.

April 2016 | www.wealth-monitor.com