The Business of Investment Banking

By K. Thomas Liaw | Go to book overview
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Emerging Markets
Emerging markets are an integral part of the global capital markets. They present unique opportunities to bankers. To capitalize on the profit potential in investment banking operations in emerging markets, bankers should be aware of the specific environment in each sector of the market. This chapter describes the complex process involved in doing business in emerging markets. First, several risk factors are unique to emerging markets. This includes liquidity risk, political instability, insufficient legal infrastructure, and risk of contagion effects. Issuance and trading of Brady bonds have dominated emerging market activities for many years. However, there is no longer a pipeline of Brady restructuring to feed the market. Most Bradys will eventually be paid off, exchanged, or bought back in the secondary market. This chapter also covers equity trading and privatization programs in emerging markets, clearing and settlement of emerging market instruments, and emerging market derivatives, which are essential in winning business and hedging risks in emerging markets.
The term emerging market describes the securities markets of a developing country and the use that country makes of international capital markets. Emerging markets are increasingly an integral part of today's global capital markets. The implementation of economic reforms throughout emerging markets has created great expectations and optimism. Even though these emerging countries are still far behind the United States, Western Europe, and Japan, many developing countries are taking steps to build more efficient capital markets. These steps should target three areas:
1. Legal infrastructure for investor protection: The. fundamentals behind investor protection are full, accurate, and timely company financial reports and disclosure; fair securities issuance and trading practices; and the sanctity of contract law. All are essential if emerging markets are to achieve their key objectives.
2. Establishment of modern banking and securities laws: A good start for any country is a contract law, a company law, a banking law, and a justice system that enforces the law effectively.
3. Corporate ownership and governance: Expanding enterprise ownership is perceived as a means of increasing social stability in emerging markets. In recent


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The Business of Investment Banking


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