Emerging Markets in Global Macro Investing

By Gene Frieda

This article was first published as a chapter in Global Macro: Theory and Practice, by Risk Books.

Brazil has some of the savviest global macro investors in the world. While financial engineers from Ivy League schools were busy turning trash into triple A-rated securities in the early part of the 21st century, Brazil’s traders were applying their own sophisticated engineering to global markets.

In the 1980s and 1990s, Brazilian fixed income traders were on the cutting edge of financial innovation, as they sought to “hedge” against hyperinflation and to circumnavigate a web of capital controls. It was no coincidence that, when Brazil was faced with its own exchange rate crisis in 1999, the government called on a talented 42-year old Brazilian economist and hedge fund manager, Arminio Fraga, who happened to be managing a dedicated pool of emerging market investments for George Soros’s Quantum Fund, to save the day. Upon becoming the governor of the central bank, Fraga instituted inflation targeting and helped steer the economy through a harrowing 2002 election campaign won by leftist candidate Lula da Silva.

With relative stability restored, Fraga resigned at the end of 2002 an

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