Mon - Wed 11-11.30 and 4.45 - 5.30 PM
MW, 9:30am to 10:45am
This course provides a framework of learning about exposure to emerging financial markets. We will discuss the key elements of dealing with emerging markets and the various risks associated with them. These risks range from political risk, currency risk, inflationary environments, sovereign risk, legal risks, corporate governance, speculative bubbles, cultural risk, liquidity risk, bailout risk, etc.
The course will cover financial products in emerging markets including equities (depositary receipts and dual classes of stock), foreign exchange risk (official versus unofficial rates as in Venezuela), derivatives (both exchange-traded and OTC based products), fixed income securities (sovereign bonds, corporate bonds and syndicated loans) and mutual funds (closed-end, open-end, and ETFs).
We shall study all the major financial crises that emerged from these economies like the East Asian Crisis of 1997, the Russian Default Crisis of 1998, the Brazilian Crisis, the Argentinian Default Crisis (2001-2002), the Turkish Crisis (around 2001 also), the impact of the 2008-2009 U.S. financial crisis on Europe and emerging markets like Ukraine, Greece, Iceland, Hungary, Pakistan, etc. (2007-2011).
Given that emerging markets are spread all over the globe, the focus in this course will be Brazil, Russia, India, China and South Africa (so-called BRICS countries). In Latin America, the additional countries of focus will be Argentina and Mexico, in East Asia we will focus more on Malaysia, Indonesia and Thailand, in Africa and Middle East we will focus on Turkey and Egypt, and in in East Europe on countries like Poland and Czech Republic, etc.
In the end, we will be able to evaluate the risks associated with an exposure to emerging markets while at the same time appreciating the benefits gained by diversification and higher returns.
Topics and Readings
1. What are Emerging Markets?
a. Chapter in the MR Recommended Textbook.
b. Lecture Set Notes #1 by Kishore Tandon. Posted on BB
c. Characteristics of Emerging Markets by Richard Hoyer-Ellefson and Wei Li (Working Paper ssrn 2004). Posted on BB.
d. The Hidden Risks in Emerging Markets by Witold Henisz and Bennet Zelner. (Harvard Business Review, April 2010). You can access this through the Library Collection.
2. International Monetary Fund (IMF) and International Finance Corporation (IFC) and their role in financing emerging market development.
a. Lecture Set Notes #2 by Kishore Tandon. Posted on BB
b. What is the IMF? IMF website and posted on BB
c. Lending Policies of IMF? IMF website and posted on BB
d. IMF Quota and Governance Reform. www.imf.org/external/pp/longres.aspx?id=4501
3. Financial Crisis in Emerging Markets
a. Lecture Set Notes #3 by Kishore Tandon. Posted on BB.
b. Mexican Peso Crisis 1994-95.
c. East Asia Crisis of 1997. Chronology of the Asian Financial Crisis by Laura Alfaro, Rafael Di Tella and R. Kim. Harvard Case 9-708-001 (2009).
d. Russian Debt Crisis of 1998: Financial Globalization and the Russian Crisis of 1998 by B. Pinto and S. Ulatov (World Bank WP 2010). Posted on BB.
e. Long-Term Capital Management.
f. Brazilian and Argentinian Crisis from 1998 to 2002.
g. Financial Crisis of 2008 and 2009 and its impact on emerging markets and smaller European countries.
4. Emerging Market Currencies and its Derivatives (India, China, Russia, Brazil, South Africa, etc.)
a. Lecture Set Notes #4 by Kishore Tandon. Posted on BB.
b. Indian Currency Futures (Dubai Bourse), Brazilian Mercentile Futures for Brazilian Reais, South African Futures Exchange for Rand, Russian Ruble Futures on CME, Korean Won derivatives, etc. Various websites.
c. OTC currency derivatives like non-deliverable futures and currency swaps, etc.
5. Emerging Market Equity Markets
a. Lecture Set Notes #5 by Kishore Tandon. Posted on BB.
American Depositary Receipts, Global Depositary Receipts, Regulation S and Private Placements.
b. Depositary Receipts: Concept, Evolution and Recent Trends by Manoj Kumar (Working Paper ssrn 2003)
c. Valuation and Momentum in Frontier Emerging Markets by de Groot, Juan Pang, and L. Swinkels (Working Paper 2010 ssrn). Posted on BB.
d. Dual Classes of Stock in China, Thailand, etc.
6. Emerging Markets Debt Markets and Credit Spreads
a. Lecture Set Notes #6 by Kishore Tandon. Posted on BB.
b. Eurobonds, Sovereign Bonds, Corporate Bonds, etc.
c. Private Placements SEC Rule 144A.
d. Emerging Market Brady Bonds from 1990s.
e. Dim Sum Bonds 2010 and 2011 (Financial Times)
f. Development of Brazilian Bond Markets by Ricardo P. C. Leal and Andre L. Carvalhal-da-Silva (Working Paper 2006 ssrn), Posted on BB.
g. Sovereign Securitization in Emerging Markets by Andreas Jobst (Journal of Structured Finance 2006)
7. Emerging Markets Investment Companies and Mutual Funds: Open-Ended, Closed-End Country Funds and Exchange-Traded Country Funds, iShares, etc.
a. Lecture Set Notes #7 by Kishore Tandon. Posted on BB.
b. ETFs – A Primer
8. Microfinance in Emerging Markets
a. Lecture Set Notes #8 by Kishore Tandon. Posted on BB.
b. Microfinance Meets the Market by Cull, Demirguc-Kunt and Morduch (World Bank WP 2008. Published in Journal of Economic Perspectives 2009.
c. ACCION International. Harvard Case 2006
d. Investment in Microfinance Equity: Risk, Return and Diversification Benefits.
WP 2011 by Briere and Szafarz (ssrn 2011).
9. Privatization and Liberalization
a. Lecture Set Notes #9 by Kishore Tandon: Experience of Chile in 1970s, Korea in 1980s, United Kingdom in mid-1980s, Transitional Economies (East European countries) in late 1990s, Western European countries in mid-1990s in a rush to join European Monetary Union, Asian countries in 2000s (mostly China, India, Malaysia, Russia, etc.)
b. Privatization and Finance by W. Megginson (Working Paper 2010 ssrn). Posted on BB.
c. Choi SD, I. Lee and W. Megginson: Do privatization IPOs outperform in the long run. Financial Management 2010/11.
d. Gupta, Nandini (2010): Privatization in India (WP Columbia). Posted on BB.
e. Privatization Database 1988 – 1999 and 2000-2008: World Bank website
10. Case Studies on Countries like India, China, Brazil, etc.
a. Franklin Allen, Jun Qian and Meyjun Qian: China’s Financial System: Past, Present and Future (Working Paper 2007 ssrn). Posted on BB.
b. Franklin Allen, R. Chakraborty, S. De, J. Qian and M. Qian: The Financial System Capacities in China and India (Working Paper November 2007 ssrn). Posted on BB.
Textbook / Readings Required:
1. None Required
2. My own notes distributed and also posted on Blackboard.
3. Some articles and readings from SSRN (Social Science Research network), etc. will be posted on Blackboard (BB). A few Harvard cases may have to be bought.
4. NYT, WSJ, FT articles
Reference Books (recommended and not required: can be purchased relatively cheap)
1. Investing in Emerging Markets: The BRIC Economies and Beyond (Wiley 2010) by Julian Marr and Cherry Reynard (MR)
ISBN: 04707 48257. Available online $36
2. Six Sizzling Markets by Pran Tiku (Wiley 2008) (PK)
ISBN-13 9780470178881. Available online $32
There is no recent textbook in this area. The last one was published ten or eleven years ago and is out of print and outdated. The field of emerging markets has changed a lot in the last twenty years starting in 1992 since the breakdown of Soviet Union and the newly founded independence of East European countries like Poland, Czech Republic, Hungary, Ukraine, etc. Added to this independence came the financial liberalization in Europe (ahead of the formation of European Union) and in most of Asia (South Korea, Thailand, Malaysia, Singapore, India etc.). This was followed in the last ten years by big economic changes in China, which fueled the emphasis to international trade. The crisis in 1990s in Latin America (Mexico and Brazil) was followed by a renaissance in those countries and later in Argentina.
Class Participation / Attendance:
Group Presentation / Project:
Guidelines for Group Projects
Business activities involve group effort. Consequently, learning how to work effectively in a group is a critical part of your business education.
Every member is expected to carry an equal share of the group’s workload. As such, it is in your interest to be involved in all aspects of the project. Even if you divide the work rather than work on each piece together, you are still responsible for each part. The group project will be graded as a whole: its different components will not be graded separately. Your exams may contain questions that are based on aspects of your group projects.
It is recommended that each group establish ground rules early in the process to facilitate your joint work including a problem-solving process for handling conflicts. In the infrequent case where you believe that a group member is not carrying out his or her fair share of work, you are urged not to permit problems to develop to a point where they become serious. If you cannot resolve conflicts internally after your best efforts, they should be brought to my attention and I will work with you to find a resolution.
You will be asked to complete a peer evaluation form to evaluate the contribution of each of your group members (including your own contribution) at the conclusion of each project. If there is consensus that a group member did not contribute a fair share of work to the project, I will consider this feedback during grading.
Group Project / Presentation (35%)
You will form groups of 4 or 5 students (depending on class enrollment – I will confirm this in the first meeting) on your own or through the Blackboard. These groups should be finalized latest by October 30. Each student in a group will be asked to evaluate other members of the group. If anyone does not submit this sheet, they will be penalized.
Each group will have to make a ten to fifteen minute presentation to the class (depending on the number of groups) and should be ready to answer questions from the students in the class or the instructor.
The group project will be an analysis of:
(a) An emerging market or frontier market country; and
(b) A major investment from that emerging market country, justifying why it is a good investment.
It will provide a 5 to 7 year analysis of that country’s macroeconomic, microeconomic, political, social, financial and industrial changes and that country’s path to economic growth. Next, you have to pick a company, preferably publicly listed in that country, and present a financial analysis of that company as a possible investment. You will have to make an argument as to why you think that your recommended company will make a good investment.
You should finalize the topic by end of October.
Mid-term examination: 25%
Final examination: 30%
Group Project / Presentation 35%
The process of assigning grades is intended to be one of unbiased evaluation. Students are encouraged to respect the integrity and authority of the professor’s grading system and are discouraged from pursuing arbitrary challenges to it.
If you believe an inadvertent error has been made in the grading of an individual assignment or in assessing an overall course grade, a request to have the grade re-evaluated may be submitted. You must submit such requests in writing to me within 7 days of receiving the grade, including a brief written statement of why you believe that an error in grading has been made.
In-class contribution is a significant part of your grade and an important part of our shared learning experience. Your active participation helps me to evaluate your overall performance.
You can excel in this area if you come to class on time and contribute to the course by:
The School expects that students will conduct themselves with respect and professionalism toward faculty, students, and others present in class and will follow the rules laid down by the instructor for classroom behavior. Students who fail to do so may be asked to leave the classroom.
Collaboration on Graded Assignments
Students may not work together on graded assignment unless the instructor gives express permission.
Course evaluations are important to us and to students who come after you. Please complete them thoughtfully.
Integrity is critical to the learning process and to all that we do here at NYU Stern. As members of our community, all students agree to abide by the NYU Stern Student Code of Conduct, which includes a commitment to:
The entire Stern Student Code of Conduct applies to all students enrolled in Stern courses and can be found here:
Undergraduate College: http://www.stern.nyu.edu/uc/codeofconduct
Graduate Programs: http://w4.stern.nyu.edu/studentactivities/involved.cfm?doc_id=102505
To help ensure the integrity of our learning community, prose assignments you submit to Blackboard will be submitted to Turnitin. Turnitin will compare your submission to a database of prior submissions to Turnitin, current and archived Web pages, periodicals, journals, and publications. Additionally, your document will become part of the Turnitin database.
Your class may be recorded for educational purposes
If you have a qualified disability and will require academic accommodation of any kind during this course, you must notify me at the beginning of the course and provide a letter from the Moses Center for Students with Disabilities (CSD, 998-4980, www.nyu.edu/csd) verifying your registration and outlining the accommodations they recommend. If you will need to take an exam at the CSD, you must submit a completed Exam Accommodations Form to them at least one week prior to the scheduled exam time to be guaranteed accommodation.