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AIG Financial Products launches investible emerging markets foreign exchange indices


Wilton, Connecticut-based AIG Financial Products, part of American International Group and the parent company of Banque AIG, has launched the AIG Emerging Markets Foreign Exchange Index, a

Wilton, Connecticut-based AIG Financial Products, part of American International Group and the parent company of Banque AIG, has launched the AIG Emerging Markets Foreign Exchange Index, a new family of investible indices, in response to the rapid growth in recent years of investor interest in emerging markets and foreign exchange as asset classes.

The AIG-EMFXI index provides investors with a transparent, rules-based tool for passive exposure to emerging markets foreign exchange, while the AIG-EMFX Benchmark Index replicates the return of investing in an equally weighted basket of 19 emerging market currencies against the US dollar. The AIG-EMFXI also offers investor a vehicle to access local money market-like returns without having to maintain local currency settlement facilities.

‘The investor universe has moved significantly into emerging markets in recent years, but the array of index-based opportunities for emerging market exposure has not kept pace,’ says AIG-FP president Joseph Cassano. ‘We are confident that the AIG Emerging Markets Foreign Exchange Index is going to help fill that void very effectively.’

The AIG-EMFXI currently comprises the Argentine peso, Brazilian real, Chilean peso, Colombian peso, Mexican peso, Chinese yuan, Indian rupee, Indonesian rupiah, Korean won, Philippine peso, Taiwan dollar, Thai baht, Czech koruna, Hungarian forint, Polish zloty, Slovak koruna, Israel shekel, Russian rouble, South African rand and Turkish lira. Due to liquidity concerns, the Thai Baht was removed from the Benchmark Index at the end of December.

According to AIG-FP, estimated historical returns of the Benchmark Index would have been comparable to, and highly correlated with, other emerging market asset classes, yet with lower volatility, and the AIG-EMFXI has the advantage of being tradable and liquid, which is not always the case with other emerging market-oriented indices.

A number of criteria have been used to determine which currencies qualify as emerging market currencies for inclusion in the index, including per capita gross domestic product and sovereign credit ratings. However, AIG-FP says the most important criterion is the liquidity of the currency, ensuring that the index is truly investible.

The AIG-EMFXI family of indices comprises three regional indices as well as sub-indices for the 20 individual currencies, 19 of which are included in the Benchmark Index. The US dollar versions of the Benchmark Index, regional indices and associated sub-indices include both excess and total return versions. The family also includes euro- and yen-denominated versions of the Benchmark Index in total return form.

Founded in 1987, AIG Financial Products is a wholly owned subsidiary of American International Group and was one of the first companies to focus principally on the US derivatives markets in the United States. It is active in a range of OTC derivative and structured products markets, including commodities, credit, energy, equities, foreign exchange, and rates.

From its offices in London, Paris, Tokyo, Houston, Hong Kong and Wilton, Connecticut, AIG-FP provides corporate finance, investment, and financial risk management solutions to clients including leading corporations, investment managers, pension funds, banks, investment banks, sovereigns, hedge funds, foundations and endowments, as well as high-net-worth individuals. As the creator of the Dow Jones-AIG Commodity Index, the company has a strong track record in the development of index-based markets.

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