NYU Stern School of Business

Undergraduate College

C15.0023.001: TPCS IN EMERGING FINANCIAL MARKETS

Fall 2010

Instructor Details

Martin J. Siegel

msiegel@stern.nyu.edu

By Appointment

KMC Room 9-150


Please note that I can be reached on E-mail:  MJSIEGEL@MSN.COM
That is preferable to using my e mail at NYU.  Because of spam  I do not check the NY mailbox on a daily basis.  If necessary I can be reached at home: 845 786 5446

 

Course Meetings

TR, 11:00am to 12:15pm

KMC 4-60

 

Course Description and Learning Goals

The world is changing. Both public and private pools of capital look upon emerging markets as quite a different sort of opportunity today as compared to just five years ago. No longer are they merely a diversification play relative to developed markets nor are they primarily an export driven leveraged play on global growth. Today, global investors are increasingly looking upon the rapidly growing internal markets of the emerging economies as a long term structural investment opportunity in its own right, facilitated by favorable demographics, domestic institutional development, and increasingly market-oriented policy reforms.

The perspective in this course is that of an investment manager, specializing in emerging and frontier markets, responsible for optimizing performance of investment portfolios at a bank, pension, endowment or mutual fund. Investment opportunities in emerging financial markets around the world are examined with respect to performance optimization and global risk diversification, against a typical backdrop of high per capita income growth, low leverage, favorable demographics, accelerating urbanization, and improving transparency at both the macro-policy and corporate governance levels. Challenges considered include political risk, currency risk, asymmetric information, speculative pressure and market manipulation. Liquidity limitations, legal constraints and varying accounting rules and standards also pose challenges to emerging market investors. These unique challenges also provide unique opportunities that are not available in developed markets. Asset classes range from equities, currencies, bonds, and derivatives to real estate and private equity.

Class discussion and reading focus on both the theoretical background as well as practical knowledge necessary to successfully navigate the opportunities and pitfalls of emerging and frontier market investing. The course will also includes a select group of guest speakers who will share their first hand knowledge and accounts of investing and operating in emerging markets.

 

Pre-Requisite

C15.0001 and Senior Standing

 

Course Organization

Class participation and attendance will count for 20%, the mid-term exam 40% and the group project 40% of the final grade.   The  mid term exam will be on Thursday October 21st.

If you cannot attend a lecture I expect an e-mail notification prior to that class.

Reading preparation, attendance and class discussions are an integral part of this course It is most important that students keep up to date with the readings for the course as exam questions will be taken from the readings in the syllabus and from non-graded problem sets and assignments that may be distributed during the semester.

 It is anticipated that there will be guest lecturers for certain classes, subject of course to any changes that may occur in their schedule.

TWO SESSIONS:
There will be an A and B session this semester.  Please be sure to attend the lecture that you have signed up for.

 

Assessment Components

THE GROUP PROJECT

The group project is an important part of the course.  You will need to form into groups of 6 students.  Each group will act as an Emerging Market Investment Advisor.  Your task will be to:

 Identify an equity investment opportunity in a developing market.  

You should think of your presentation as if it were given to the Risk Management Committee of a leading Wall Street Firm.  Your presentation should be able to demonstrate the merits of the investment that you propose and highlight the potential risks.  You should also provide such details as the time horizon, the expected return, the exit strategy, and a discussion of how you intend to manage the investment.  You should also discuss any special circumstances, legal or political, the committee should consider.  Your presentation will include a written report of between 20-30  pages, double spaced, an oral presentation of 15-20 minutesand a Q and A of 5 minutes.  Note: Papers that exceed   (including bibliographies and citing) a total of 30 pages will not be accepted.

Length of the oral presentation.  With the class period of approximately 55 minutes and time needed to set up the power point presentations, you should try and limit your presentation to about 15 or 20 minutes and allow 5 minutes for a Q and A.

All members of the group will participate in the oral presentation.

Number of Companies to cover:  I have found that two companies seem to work the best.  When groups have tried to do three or  four they started to run out of time and rushed their presentations or hand no time for the Q and A.

The Timetable:  I would like to have your groups submitted  on Thursday October 7th. If you are unable to find a group I will assign you to one but it always works best when you self select.  You are to submit the country selection  on Thursday October 21rd.

Submission of the written reports and date of oral presentation:
Groups 1 and 2           Submit paper Tues 11/16        Present Tues 11/23
Group 3 and 4             Submit paper Thurs 11/18       Present Tues 11/30
Group 5 and 6             Submit paper  Tues 11/23       Present Thurs 12/2    
Groups 7 and 8           Submit paper Tues 11/30        Present Tues 12/7
Groups 9 and 10         Submit paper Thus 12/2          Present Thurs 12/9     

 Previous class presentations:  I will make available on Blackboard copies of presentations that other classes have done to give you some idea as to how others have tackled the presentations.

Please remember that the group presentation counts for 40% of your grade and your participation in the Q and A after the presentation goes towards the 20% class participation

 

Required Reading

Friedman, The Lexus and the Olive Tree. Farrar Straus 1999

 

Required reading assignments will be found in three different locations.

 

A  Reading Package (RP)  is available from the bookstore in digital format. 

 Required Readings on Blackboard.
Additional Required Readings posted on Blackboard. (BB)

 There are news articles that I think are relevant and are also required for the course They are also posted on Blackboard  under Media.

 

Optional Readings

There are also many optional readings that have been posted to Blackboard.  
It is for those students who would like to get additional insights into the Emerging Market field. (some are technical in nature)
I repeat that they are optional and you will not be tested on their content.

SUGGESTED OUTSIDE READINGS

I am often asked what books I have read that I thought were truly a worthwhile “read”.  I would offer up the following two:

            Reminiscences of a Stock Operator by Edwin Lefevre  (in soft cover)

                     If you are or want to consider being a trader on Wall Street, this book

                        written in 1923 is still considered the bible of stock trading.and

                        great book to read.

            F.A. Hayak – The Road to Serfdom

 

Video of Lectures

If you miss a class you are responsible for watching the video of that lecture  posted on Blackboard.

 

Suggested Readings

The Wall Street Journal
The New York Times  
The Financial Times 
The Economist

 

Who Are You?

At the second class   I would appreciate your submitting (typed) the following information:

 Educational Background, working experience along with your goals, ambitions and other relevant topics –how/why did you got here..    who you are…    and who do you wish to be 

     Attach your photo.
     Include your E Mail Address and phone number

 

Joint Sessions

In order to accommodate some of the conflicts that a few guest speakers have, I have scheduled three joint sessions of the class which will be held from 12.15 –1.45.  I realize that a few students might have time conflicts. I have tried to avoid doing this as much as possible but in certain cases it could not be avoided.

 

Notes on the Reading Material

I invite speakers, who are highly regarded working professionals in their field, to address some of my classes. I feel that it was a wonderful way for the students to get different   perspectives and viewpoints on the world of emerging markets.  This has been borne out by the student’s comments at the end of the semester.

Unfortunately the syllabus and reading lists for this class must be submitted to the school  bookstore far in advance of the semester ,while the travel schedules of the guest speakers have not been finalized., therefore: .

It may be necessary to change the sequence of some of the lectures. Since you are all seniors at Stern I am sure that this inconvenience will not deter you from finding the correct readings for each lecture.

 

The Use of Computers in the Classroom

I would prefer that the students in the class do not open their computers during the lectures.  All lectures have handouts of the power point slides and all power point slides are also posted on blackboard.  There is also a video of each class session posted on blackboard in the event that you might have missed something during the lecture.

 

Grading

At NYU Stern we seek to teach challenging courses that allow students to demonstrate their mastery of the subject matter. Assigning grades that reward excellence and reflect differences in performance is important to ensuring the integrity of our curriculum.

In general, students in this elective course can expect a grading distribution where about 50% of students will receive A’s for excellent work and the remainder will receive B’s for good or very good work. In the event that a student performs only adequately or below, he or she can expect to receive a C or lower.

Note that the actual distribution for this course and your own grade will depend upon how well each of you actually performs in this course.

 

Re-Grading

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.

 

Academic Integrity

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.

 

Students with Disabilities

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.

 

Recording of Classes

Your class may be recorded for educational purposes

 

Course Outline

COURSE OUTLINE

AN INTRODUCTION TO THE EMERGING MARKETPLACE

CLASS 1  - Tuesday September 7

WELCOME TO MY WORLD – THE EMERGING MARKET STORY

(RP) Papaioannou and Tsetekos: Emerging Market Portfolios –Ch. 2  
Patterns of Development in Emerging Capital Markets


CLASS 2 – Thursday September 9

 (Jewish Holiday of Rosh HaShana)

EMERGING MARKETS- SPECULATIVE BOOM OR LONG TERM INVESTMENT

 GUEST SPEAKER  Don DeVivo – Principal – Zesiger Capital
      
(BB)    Pension Funds Weigh the Risks of EM Investing: FT 9/03
(BB)    Irreplaceable Exuberance   NYTimes Editorial  8/30/0
(BB)    Investing in Russia is not always Easy.: Economist 11/03
(BB)    An EM Problem:  Contagion   : wsj: 10/06


CLASS 3 – Tuesday September 14 

INVESTMENT OPPORTUNITIES IN EMERGING MARKETS

(RP)    Smith,Walter: Risks and Rewards in Emerging Market Investments
(RP)    Malkiel & Mei: Global Bargain Hunting
                                   How persification can Reduce Risk
(BB)    Salomon Brothers:  Reasons for Global Investing
(BB)    Pre Emerging Frontier markets offer opportunities FT 7/12/04
(BB)    India and China are the only real BRICs in the wall FT 12/06 
(BB)    How Carlos Slim Makes Decisions   FT 7/13/07

THE BENEFITS OF PERSIFICATION

(note:  The diversification argument is a key reason to investi in Emerging Markets.   I assume you are all familiar with MPT so we will probably not be discussing this during the class)

 
Class 4 – Thursday September 16

 THE PROBLEMS WITH EMERGING MARKET INVESTING

(RP)    Papaioannou and Tsetkos: Emerging Market Portfolios Chapter 3
                    Bruce: A Survey and Synthesis of Problems and Opportunities in Emerging Capital Markets.
(RP)    HBS: Hong Kong’s Financial Crisis 1997- 1998
(BB )    CSFB Others Face Harrowing Escape
(BB)     A Night of Horror Unfolds in Jakarta
(BB)    Siegel: Regent Hotel ((Indonesia) Notice to Guests May 1998
(BB)    A former student:  A Real Estate Deal in Russia Turns Sour
   

CLASS 5   –  Tuesday September 21 


Part 1 

ACTIVE MANAGEMENT OF THE EQUITY PORTFOLIO
1. ADRS, GDRS, OR LOCAL SHARES- DOES IT MATTER

 (BB)    Siegel:  Additional Thoughts on ADRS (notes from my files)
(BB)    Siegel notes:  Investing in markets when the local market is closed to foreign investors:

                        Daewoo Securities: Guaranteed Equity Linked Notes
                        Flemming: Indian Participation Note
                        BZW: Foreign Premium or Local Discount:  Why pay less?
                        Siegel: Notes on a swap in Singapore Airlines

(BB)  ADRS can Add 10% to Stock Values:  FT 10/03
(BB)  ADRs and GDRs – Does it Matter:    FT 7/03
(BB)  Using ADRs to Circumvent Currency Controls  FT 8/03
(BB)  If a Market “Opens” the Premium may Disappear: WSJ 7/03

  
CLASS 6  Thursday September 23

GUEST SPEAKER:  ERIC ROSENFELD, Former Vice Chairman of Salomon Bros. and former partner of Long Term Capital

 NOTE;  THIS WILL BE A JOINT SESSION HELD FROM 12;15 – 1;45 PM

Class 7  – Tuesday September 28

THAILAND EQUITY TRADE 

Handout:  The Thailand Equity Trade

 

CLASS  8– Thursday September 30

A TRADING STRATEGY IN EMERGING EQUITIES

(BB)    Siegel: A Convergence Trade through the Swap Format
(RP)    Case Study:  HBS – Royal Dutch / Shell Transport Trade

 

PHASE II  EMERGING MARKETS – EQUITY INVESTMENTS
         

CLASS 9  Tuesday October 5
 
INDEXING AND THE USE OF CLOSED END AND OPEN ENDED FUNDS.

(BB)    Morgan Stanley Introduction to the M.S.C.I.
(BB)    Goldman Sachs The New MSCI Indexes:  Highlights and Implications
(BB)    Efficient Markets and Indexing:  FT 8/03
(BB)    Can Portfolio Managers Outperform an Index:  FT 7/03
(BB)    Will Active Managers Invest Passively:  Economist 5/03
(BB)    ETF’s – A Primer
(BB)    Navigating Routes to Foreign Markets   NYT 1-/04
(BB)   Investors Flock to Emerging Mkt ETFs   FT  7/2/05
(BB)    A Comparison ETFs and Funds 
(BB)    International Funds continue to Grow  8/06  


Class 10 – Thursday October 7   

ACTIVE MANAGEMENT OF THE EQUITY PORTFOLIO

TOP DOWN / BOTTOM UP 

(RP)    Van Agtmael: The Worlds Emerging Stock Markets Chapter 4
                     Portfolio Management in Emerging Markets
(BB)    In EM following an Index Might not be as Good as Active Management:   FT 8/03  
(BB)    The Dangers of Selling Short
(BB)    What Does Short Selling Mean?
         


Class 11 – Tuesday October 12

NOTE;  YOU ARE TO SUBMIT THE NAMES OF THE PEOPLE THAT WILL BE IN YOUR GROUP TODAY

ACTIVE MANAGEMENT OF THE EQUITY PORTFOLIO

GUEST SPEAKER:  Don DeVivo - Zesiger Capital

CREATING AN ACTIVELY MANAGED EQUITY PORTFOLIO 

(BB)   NYT: Krystof, Wyatt:  Who Went Under in the World’s Sea of Cash
(BB) Siegel:  Business Plan – November 18, 1998
(my proposal to manage equity money in Emerging Markets)
(BB) Siegel:  Asian Trip – May 10, 1998
(my report to the Risk Mgt.Committee after a trip to Asia)   
(BB): Anna Quindlen:  Thoughts on Life
(BB)  Steve Jobs Commencement Address: Stamford Unviersity
       


Class 12 – Thursday October 14

EMERGING MARKET CURRENCIES


 

(RP)    Fong: Currency Risk Management in Emerging Markets
(RP)    HBS: The 1994-95 Mexican Peso Crisis
(BB)    Why Exchange Rates Matter:  NYT 6/3/04
(BB)    Fear of Floating:  Economist 8/03
(BB)    McCurrencies and the PPP
(BB)    Personal Investing: CDs Now Offered in Foreign Currencies NYT 
      

CLASS 13– Tuesday October 19   

GUEST SPEAKER  Emily French – Principal – Consilagra

 DOLLAR BONDS, SWAP ARRANGEMENTS, RELATIVE VALUE AND THE REPO 

(BB)    JP Morgan to offer local currency government bonds   FT 6/14/05  
(BB)    Morgan Stanley: Emerging Market Repo
(BB)    Can an Inpidual do a Repo ?  JP Morgan
(BB)    EM Local Currency and Bonds:  Ft 6/03
(BB)    Sovereign Debt in local currency   WSJ July 05
(BB)    The Repo Man
(BB)    Finding Opportunity in EM Debt June 2006 

Class 14 Thursday October 21

GROUPS ARE TO SUBMIT THEIR COUNTRY SELECTION TODAY

THE MID TERM EXAMINATION


CLASS 15 – Tuesday October 26


EMERGING MARKET DEBT AND THE BRADY BONDS

(RP)   Luis: Emerging Fixed Income and Local Currency
                                         An Investment Management View
(BB)   The allure of emerging markets FT 7/27/06
(BB)   JP Morgan Brady Valuation Tutorial
                                         Session 1.  Introduction to Stripped Yield 
(BB)   JP Morgan
                                         Introduction to the Emerging Bond Index  7/95

(BB)   JP Morgan
                                         Introduction to the Emerging Bond Index Plus (EMBI +)  
(BB)    The use of Credit Default Swaps (CDF’s)
     Note: There are 4 articles on CDF’s in the Media section for those who may be interested in the subject.
(BB)   Emerging market debt takes on local flavour  FT 7/17/07


CLASS 16 – Thursday October 28

GUEST SPEAKER - STEVE KOENIG, MANAGING DIRECTOR, JP MORGAN

EMERGING MARKET DERIVATIVES 

(RP)    Emerging Markets Portfolios Chapter 11: Derivatives in Emerging Markets
(RP)    HBS: Introduction to Derivative Instruments

 


 
 

THE DANGERS WE FACE IN EMERGING MARKETS

CLASS 17 – Tuesday November 2

ELECTRONIC GLOBALIZATION – THE NEXT STEP ?

Friedman:  The Lexus and the Olive Tree

(BB)    Friedman:   Small and Smaller  NYT 4/7/04
(BB)    Friedman It’s a Flat World After All  NYT 4/4/05 
(BB)   Tom Friedman’s Commencement Address  NYU -  Summer 2005
(BB)   An Argument in favor of sweat shops...NYT OpEd 6/6/6
(BB)   A New Twist - Pay for your globalization WSJ 8/9/06   
(BB)   Working for $2.00 a day: NY 8/17/06

 
CLASS 18 – Thursday  November 4 

 NOTE;  THIS WILL BE A JOINT CLASS.  IT WILL BE HELD FROM 12.15 – 1.45 …….

THE CRISIS IN SOUTH EAST ASIA AND LATIN AMERICA
WHAT WENT WRONG – A LOOK AT HISTORY

GUEST SPEAKER   Joyce Chang – Global Head of Emerging Markets - Debt, Currency and  Research for Emerging Market: JP Morgan

(RP)    Goldstein: The Asian Financial Crisis:Causes, Cures    
                                Ch 2: Origins of the Crisis 
(BB)    NYT:  Kristof and Sanger:  How U.S. Wooed Asia to Let Cash Flow  In
(BB)    Kristof and WuDunn:  Of World Markets, None is an Island 
(BB)    Kristof: World Ills and Obvious, the Cures Much Less So
(BB)    Dornbush: A Primer in Emerging Market Crisis
 


CLASS 19   Tuesday November 9

GUEST SPEAKERS: Al and Barrie Zesiger – Zesiger Capital

AN EMERGING, EMERGING MARKET – VIETNAM

 MAKING DIRECT INVESTMENTS ( VENTURE CAPITAL)  DECISIONS IN VIETNAM

(BB)  Foreign Direct Investments in an Emerging Market
(BB)  Vietnam is Leading Asian Market in 2006

 

GROUP PRESENTATIONS 

THE WRITTEN GROUP PRESENTATIONS MUST BE SUBMITTED TO THE PROFESSOR IN HARD COPY AND TO THE GROUP VIA THE INTERNETE ON THE DATES INDICATED IN THE SYLLABUS.

FAILURE TO HAND IN YOUR PRESENTATION ON TIME WILL AFFECT YOUR GRADE.


CONVERGENCE, RELATIVE VALUE AND SWAPS



 CLASS 20 – Thursday  November 11

THE HEDGE FUND

(BB)  NYT: Lewis:  How the Eggheads Cracked
(BB)  Muehring: Institutional Investor:  John Merriwether by the Numbers
(BB)  When Genius Failed


CLASS 21-  Tuesday November 16

GROUPS 1 AND 2 ARE TO SUMBIT THEIR GROUP PAPER TODAY AND PRESENT ON TUESDAY NOVEMBER 23.

LONG TERM CAPITAL MANAGEMENT – A CASE STUDY


GUEST SPEAKER RICHARD LEAHY , former Partner  LTCM

(RP)    HBS. -   Long Term Capital Management – A
(RP)    HBS-      Long Term Capttal Markets-  Presentation C
(BB)    Bob Rubin discusses Russia and LTCM……..

 
         
Class 22 –    Thursday  November 18
 
GROUP 3 AND 4 WILL SUBMIT THEIR GROUP PAPER TODAY AND PRESENT ON  TUESDAY NOVEMBER 30

 


GUEST SPEAKER:  Stanley Shopkorn – Shopkorn Associates

NOTE;  THIS WILL BE A JOINT SESSION – FROM 12.15 – 1:45 PM


WHAT IS DEFAULT AND CAN YOU PROTECT AGAINST IT

(BB)  Salomon The Risks of Sovereign Lending: Lessons from History

 

GROUP PRESENTATIONS

CLASS 23 – Tuesday November 23

GROUP 5 AND 6 WILL SUBMIT THEIR GROUP PAPER TODAY AND PRESENT ON THURSDAY DECEMBER 2.

GROUP 1 AND 2 WILL PRESENT TODAY.

    
THURSDAY NOVEMBER 26TH………..THANKSGIVING HOLIDAY


CLASS 24 – Tuesday November 30th

NOTE;  GROUP 7 AND 8 WILL SUBMIT THEIR PAPER TODAY AND PREENT ON TUESDAY DECEMBER 8.

GROUP 3 AND 4 WILL PRESENT TODAY

 
CLASS 25 – Thursday  December 2

NOTE;  GROUP 9 AND 10 WILL SUBMIT THEIR PAPER TODAY AND PREENT ON THURSDAY DECEMBER 9

GROUP 5 AND 6 WILL PRESENT TODAY

 

CLASS 26 – Tuesday December 7

GROUP 7 AND 8 WILL PRESENT TODAY 

 

CLASS 27 – Thursday December 9

GROUP 9 AND 10 WILL PRESENT TODAY

 

CLASS 28 – Tuesday December 14

WHERE DO WE GO FROM HERE

  A wrap up of the semester by Professor Siegel

 

MARTIN J. SIEGEL - CV

MARTIN J. SIEGEL

1 Willow Place
Tomkins Cove, N.Y. 10986
845 786 5446
e mail:  MJSIEGEL@MSN.COM


PROFESSIONAL EXPERIENCE

STERN SCHOOL – NEW YORK UNIVERSITY    Fall 1999 –

LONG TERM CAPITAL MANAGEMENT, L.P.  1994- November 1998


SMITH NEW COURT SECURITIES     1992-1993
Director


SALOMON BROTHERS       1973-1992
Vice President and Manager of the International Equities Department


DONALDSON, LUFKIN AND JENERETTE    1970-1973
Vice President.

BOBBIE BROOKS INC.       1965-1968
CEO AND COO of the Max Siegel division of this major publicly traded apparel manufacturer.
     
MAX SIEGEL ASSOCIATES      1956-1965
COO of the largest popular-priced children’s apparel manufacturer in the United States.
The firm employed 1000 people in nine operating divisions with factories in nine states.
In 1965 Max Siegel Associates was acquired by Bobbi Brooks Inc.

EDUCATION

MBA, COLUMBIA UNIVERSITY, 1970
Finance.  Honors: Beta Gamma Sigma

BA, UNIVERSITY OF VERMONT, 1956  ( Go Catamounts )
Economics.  Honors:  Economic Honorary Society

 

Stern Policies

General Behavior
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
Course evaluations are important to us and to students who come after you.  Please complete them thoughtfully.

 

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