EXCLUSIVE: MIG Bank Sees Big Forex Market Potential For HNW Clients

Tom Burroughes

18 July 2013

If the events of recent years have taught investors anything it is that there are no permanent trends in economics. Over a decade ago, when the euro arrived, the foreign exchange world appeared resigned to a duller, less varied forex market as old legacy European currencies died out.

But as is seen on a daily basis, the forex market has seen plenty of variety and drama, if not on the scale of the European Exchange Rate Mechanism sagas of the early 1990s. The recent debt dramas in Greece and Cyprus, and the move by Japan to push down the yen sharply against major trading currencies, highlight how many opportunities smart forex traders might be able to find.

That is the hope, at least, of clients of MIG Bank, a Lausanne, Switzerland-based firm dating back 10 years. MIG Bank obtained a banking licence in 2009 from the Swiss Financial Market Authority, or FINMA. The firm operates a subsidiary, MIG Capital (Europe) Limited (“MIG Capital”), which is authorised and regulated by the Financial Conduct Authority in the UK. It provides trading and other services out of London. MIG Capital is launching an education programme and going on the road to inform new and existing clients about opportunities it sees.

MIG Capital aims to expand into countries such as southern Europe, and recently brought on board Federico Cirulli, who joined the firm earlier in 2013, having previously been head of Southern Europe at CMC Markets before joining MIG Capital; he had been CEO also of Activtrades, another brokerage firm, based in London. He recently spoke to WealthBriefing alongside his colleague, Luciano Jannelli, who joined MIG Bank in October last year, having previously held posts as an economist at the World Bank in Washington DC and at UBS in Switzerland.

“We want to establish our brand across Europe and into the southern and eastern European countries. We feel there is good ground for us to be growing,” Cirulli told this publication. “Most of our clients,” he said, “use systematic, quantitative strategies that remove some of the emotion, without being forced to watch a screen all the time – and potential missteps – in clients’ handling of forex.”

Another benefit of the forex market is that a client can operate in a 24-hour market, he said. “For retail clients, it is now far easier for them to concentrate their trading strategies on few exchange rates,” he continued.

The trend is your friend

As has been described here before, forex trading and currency-related wealth management has been a notable trend. (To see another article on the issue, click here.)

Managers at MIG Bank say getting a bank licence in Switzerland, with all the associated compliance protections, has been an important step in differentiating it from a large mass of brokerage platforms. Cirulli and Jannelli say firms such as theirs are relatively few and far between. Other firms of a similar status include Swissquote and Dukaskopy Bank, they said.

MIG Capital is launching an education programme, part internet-based, part physical, to show clients how to operate in the forex markets. A number of roadshows are also involved.

As far as Jannelli is concerned, MIG is a firm he enjoys working at, given the greater nimbleness that smaller firms can have, after having spent years working for large organisations. He is excited about how forex is evolving as an investment sector.

“Now people are looking at forex managed solutions. This is a relatively new trend.”

Forex, as a segment of asset management as a whole, is still a relatively “tiny” market, so the upside potential is big, Jannelli said.

Forex is different from equities and bonds, in that, in the case of forex, one is not buying a discounted stream of cash-flows.

The firm has created multi-asset relative return, absolute return strategies and is planning to set up forex managed strategies.

Asked about know-your-client and other checks on clients prior to taking out an account, Cirulli said checks are rigorous. “Clients must show a certain level of expertise, and to have a good understanding of our products and risks involved in trading leveraged products. MIG Capital undertakes due diligence on clients, he said.

He said the firm attracts asset managers, high net worth individuals and professionals. “We are going to offer a discretionary solution focused only on forex,” added Jannelli.

The big picture

When interviewing a former UBS and World Bank top-rank economist, it is too good a chance to miss to ask about his/her outlook. What does Jannelli think of developments such as Japan’s dramatic monetary easing, and the problems of the eurozone?

Currencies that have, over the years, been seen as safe haven currencies, such as the dollar, Swiss franc and yen have all seen their central banks embark on big quantitative easing programmes, he noted, adding: “People are borrowing in these currencies to take bets in other ones. That trade can kill you if there is suddenly a move to a 'risk-off' standpoint.”

Jannelli spoke at a time when the price of gold had tumbled sharply, so it was natural for the conversation to move to this most venerable of currencies. He said he regards gold more as a currency than a commodity.

“Gold has lost some of its traction…it is due to factors in the world such as a structurally deflationary environment due to excess capacity, while inflationary pressures are under control. In emerging markets, many high-income countries are moving from current account surpluses to balance or even deficits and thereby reducing their demand for gold,” said Jannelli.

“Gold is a safe haven asset if you fear inflation but if you fear problems of growth and banking and system stability, you probably want something that is more liquid,” he said.

As for the dollar, it is currently benefitting from perceptions that the US is ahead of the eurozone in reducing its debt-GDP ratio, for example, he said. And as for China, Jannelli expects the country’s currency to rise significantly over time.

“At some point the RMB will appreciate and it will do so substantially, but becoming a reserve currency is another story,” he said. “It is certainly undervalued on a purchasing power parity basis, no doubt about it,” he said.

If a person wants to get exposure to the Asian currency appreciation story, a good proxy that in some ways is superior to buying into China outright is to own currencies such as the Singaporean dollar or the Malaysian ringgit. Recent experience shows these currencies do, if anything, overshoot the RMB when the People’s Bank of China allows the RMB to appreciate versus the dollar, he added.