Why More Broker-Dealers are Finding Success With Wider Market Access for Global Equity, FX, and Commodities

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For institutional investors, global markets have been a tantalizing prospect that has required a significant allocation of resources and analysis to interpret and maximize profitability. However, we’re seeing signs that new technologies are opening the door to wider market access for broker-dealers in a way that can uncover greater value across a variety of markets. 

Just like many other developed global markets, emerging markets have benefited from the artificial intelligence boom and growth throughout the cryptocurrency landscape. While the S&P 500’s Q2 2024 performance was impacted by confounding CPI inflation data announced in April for the month prior, the MSCI Emerging Market Index outperformed its counterpart for the second quarter. 

At the time of writing, the MSCI Emerging Market Index has experienced one-year growth of 11.72%, with much of its recent rally coming in the wake of a difficult beginning to 2024. 

January saw the index dip 4.7%, representing its slowest start to a year since 1998. Owing to the growing sentiment surrounding the US economy and the prospect of Federal Reserve rate cuts, investor interest flowed into Wall Street. 

However, generative AI optimism in developed markets has left other tech-dominant markets like Taiwan and South Korea undervalued. 

This poses a misalignment in terms of market opportunities. With emerging markets boasting industries with high and improving earnings growth, institutions can benefit from the greater return on equity, free cash flow yield, and dividend yield of the firms at the center of this growth. 

With the US economy hinging its hopes on positive CPI inflation data each month, and the prospect of a close-run election taking place later this year, broker-dealers may find better opportunities by adopting a more global outlook in the future. 

However, looking at global and emerging markets offers more issues. Factors like political unrest, instability, a lack of data, labor and raw materials shortages, and currency risks can all undermine investments and far more resources must be allocated to understanding the risks and prospects posed by wider market access. 

For institutions seeking to embrace global markets, artificial intelligence may become the perfect tool for actionable investment insights across asset classes. 

Unlocking the Potential of Artificial Intelligence

The emergence of AI can help broker-dealers navigate new markets despite greater risks lurking that could undermine investment prospects. 

We’re already seeing financial institutions roll out AI models to generate more actionable market insights, and the arrival of HSBC’s AI Markets serves as an award-winning example of how natural language processing (NLP) can be utilized to aid institutions adopting a global outlook. 

Crucially, AI Markets empowers institutional investors in navigating global financial markets by utilizing its powerful NLP engine to generate tailored financial market analytics and real-time cross-asset datasets. 

This helps to deliver a unique level of access to liquidity and ongoing market developments around the world, all within a dynamic interface that offers access to live pricing and execution. 

The Age of Post-Risk

Investing in emerging markets, particularly as a broker-dealer based in developed nations, can come with a range of risks due to a lack of visibility and the relative economic fragility of the emerging world. 

AI can help mitigate the level of risk exposure for institutions due to their ability to make informed assessments of the risk and capital allocation of investment opportunities. 

This means that the decision-making process can be semi or fully automated in a way that enhances both accuracy and efficiency–all while ensuring that opportunities aren’t missed while broker-dealers attempt to bridge knowledge gaps. 

According to Lewis Z. Liu, CEO of Eigen Technologies, many institutions make risk, capital allocation, and underwriting decisions based on just 10% of the data available to them due to cost implications or the complexity of usable data. 

Implementing artificial intelligence solutions means that broker-dealers can access this remaining 90% of actionable insights and aid accurate risk assessment across equity, FX, and commodities markets.

Fluency in Market Access with LLMs

While we’ve looked at HSBC’s NLP AI Markets platform, the future of global market analysis could be taken to the next level by large-language models (LLMs). 

Using their generative AI capabilities, LLMs can actively scour unstructured data sources throughout the entirety of the internet to extract relevant information from financial reports, contracts, and legal documentation to offer unprecedented access to opportunity analytics while streamlining due diligence processes. 

This paves the way for rapid market analysis in a way that can drive more informed decision-making for asset classes on a truly global scale. 

It’s even possible to utilize LLMs to generate trade signals across the FX landscape for competitive insights at a faster pace. 

Combining LLMs with a multi-asset prime broker offering access to trading servers on a global scale and pricing constructed from locally connected LPs and data vendors in every center, broker-dealers can utilize their AI insights in a low-latency trading environment to capitalize on opportunities in emerging markets at a pace that maximizes efficiency. 

Reaping the Rewards of Wider Market Access

Institutional interest in emerging markets currently correlates with the changing sentiment toward macroeconomic conditions in the United States and other developed economies. 

However, with the growing utility of AI insights, broker-dealers can move beyond these binary limitations and access data-driven opportunities across global markets alongside a holistic risk assessment. 

Recent MSCI Emerging Market Index growth shows that portfolios can be built in a sustainable manner by tapping into wider markets, and with the prospect of more volatility on the way in the US, we could see more institutions allocating resources towards discovering more asset classes to invest in on a global scale. 

With the right blend of technology and ambition, broker-dealers can continue to reap the rewards of global markets while outperforming their competitors.