Former JPMorgan traders with their own hedge fund - and what a fund it is...

Hedge fund powered by artificial intelligence is under the management of two former JPMorgan Chase & Co. traders. They assume that volatility will continue to rise in 2019, with Chinese yuan and the Turkish lira being the main suspects, and their main purpose is to benefit.

Damien Loh and Atsuo Ogaki founded Ensemble Capital Pte Ltd. Earlier this year, and in their view, the volatility in both currencies will jump dramatically, despite the prerequisites for lowering trade strain and calming emerging markets.

Price movements at both extremes in the EM markets were observed throughout the year, from South America to Asia, all caused by the trade war, the strong dollar, and the rising US dollar, which weighed on the stocks of developing countries. The jump in volatility is 12% from 2016 until now that investors are nervously looking for protection against the big movements in the markets.

What they use in Ensemble is a deep-learning algorithm that analyzes economic and market data and makes market forecasts of price movements, helping traders generate profits. The model monitors trading levels between different asset classes as well as economic indicators and accepts allowances. Determines potential return for transactions with high probability of profit.

"You can determine for example if you are in that direction, your chances of making money are as much as if you are in the other direction." - explains Loh in an interview conducted in Singapore. It adds, "In this case, the chances are on your side."

But Loh refuses to disclose what money the fund manages.

Despite this year's rise, the volatility of the offshore yuan declined significantly on Monday after a cease-fire between the US and China. This was also the case with the Turkish lira where the Turkish Central Bank intervened and aggressively raised the base interest rate in the fight against the sharp rise in inflation. It is from the fund that they are betting that this calm will not last long.

"Turkey may have raised the interest rate, but inflation is still high, people are poorer and have invested a lot, but if the risky assets are sinking, investors will probably leave the Turkish market." - commented Loh

"The reconciliation between China and the US, according to Loh, will also not be the end of the war." There will be disagreements going back and forth, and the economy will continue to slow down. "- Loh adds.

With this strategy, Ensemble has a return of 2% in 2018, well below the two-figure target that the company has set. The explanation for this is that traders have traded more manually and hedged instead of letting the robot "do the job."

Source: Bloomberg Finance L.P.

Graphs: Used with permission of Bloomberg Finance L.P.

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