The top-seeded Swiss, who has not played since the first week of October due to an ankle injury, has lost five times to eighth -seeded Nalbandian but has won their last three matches.
Another Argentine, fourth seed Guillermo Coria, will play number six seed Ivan Ljubicic of Croatia in the other Red Group match on Sunday in the $4.45 million Tennis Masters Cup.
The Gold Group features Rafael Nadal, Andre Agassi, Nikolay Davydenko and Gaston Gaudio in the season-ending extravaganza that runs from Nov. 13 to-20 at Shanghai's Qi Zhong Stadium.
The top two in each group advance to the semi-finals.
Twice-champion Federer, who defeated Lleyton Hewitt in the 2004 final and Andre Agassi in 2003, will be making his fourth consecutive appearance in the ATP season finale.
Last year in Houston, Federer was undefeated and improved his record at the event to 13-1. He has won 11 titles in 2005 including the U.S. Open and Wimbledon crowns.
The Swiss has already clinched the year-end world number one ranking after a 77-3 match record in 2005.
