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Can the algorithms destroy banking jobs?


Good investment banking jobs are disappearing. Much of the business has been long replaced by machines and computer algorithms. Almost all equity trading is now done electronically. Even high-yield corporate bonds, an opaque corner of the market where orders from wealthy clients are often placed over lavish meals, are being disrupted. In the US, 37% of these transactions are conducted electronically, up from 21% in early 2019.
This year also witnessed China ruthlessly going after engines of job creation. The big tech crackdown and Beijing’s reluctance to allow its hottest unicorns to go public in New York are choking off viable career paths. For years, thousands of worker bees in Hong Kong served as a bridge between the two nations, connecting Chinese startups to American savers. That tie is being severed.
But not all is lost! There’s one last frontier where finance careers are safe from machines and autocrats. Let’s talk about the world of dollar-denominated bonds sold by companies in emerging markets — especially China. They have proved surprisingly resilient to disruptive forces. In just five years, Chinese issues ballooned. There are now about $126 billion notes outstanding that offer at least a 7% coupon — off the charts in a world of near-zero benchmark rates.
Everyone wants a slice, from global asset managers such as BlackRock Inc and Ashmore Group Plc, to wealthy private banking clients at HSBC Holdings Plc and UBS Group AG. Credit hedge funds are also dabbling. And now, as defaults begin to accumulate, if doing day-to-day credit analysis on China’s real estate developers no longer appeals, you can go into distressed-debt restructuring instead.
Granted, machines can improve performance. Corporate debt is a lot more complex than stocks, and even the most savvy traders can’t keep track of all the yield curves. China Evergrande Group, for instance, has just one stock listing in Hong Kong but 13 dollar-denominated bonds outstanding (and another in the dollar-pegged Hong Kong currency) — with maturities ranging from 2022 to 2025 and from two issuing units that offer different degrees of guarantee. Computer algorithms that compare bond covenants and yield spreads can be immensely helpful.
However, a good trader with acute judgment is indispensable. Rumors abound, and what looks good on paper can turn into a sour lemon. Those with extensive networks within commercial banks and the real estate business are especially valuable. They are worth millions.
Case in point: Beijing-based developer Modern Land China Co. In mid-October, the company asked investors for a three-month extension to repay a $250 million bond due on the 25th. On paper, the offer looked good. Modern Land promised to buy back 35% of the bonds on the original due date and said its controlling shareholders would lend about $124 million to the company. The notes rallied. A week later, the company withdrew the offer and defaulted. Could computers have anticipated the hidden change of heart?


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