Emerging Markets : A Practical Guide for Corporations, Lenders, and Investors

by Hooke, Jeffrey C.

• ISBN13: 9780471360995
• ISBN10: 0471360996
• Edition: 1st
• Format: Hardcover
• Copyright: 2001-06-01
• Publisher: Wiley

Summary

The ins and outs of emerging markets Emerging markets are an integral part of the global business scene. The 1997 Asian meltdown and the Russian debt default scared investors, but as the domestic market becomes more overvalued, investors have begun seeking returns elsewhere. Destined to become a standard in the field, Emerging Markets fills the niche for a balanced evaluation of the investment opportunities in the riskiest markets throughout the world. This practical guide covers what an emerging market is, why corporations and investors should or should not invest in them, and what the risks are. Jeffrey Hooke's new book is ideal for corporations and investors who are starting to look to emerging markets as ways to improve investment returns, expand into new markets, or diversify their portfolios. Jeffrey C. Hooke (Chevy Chase, MD) is Managing Director of Hooke Associates, LLC, an investment banking firm. He was formerly director of Emerging Markets Partnership, a $4 billion fund focusing on emerging markets, and senior investment officer of the World Bank Group.

Author Biography

JEFFREY C. HOOKE is Managing Director of Hooke Associates, LLC, an investment banking firm based in Vienna, Virginia. He was formerly director of Emerging Markets Partnership (a $4 billion fund focusing on emerging markets), principal investment officer of the World Bank Group, and an investment banker with Lehman Brothers and Schroder Wertheim. Mr. Hooke is also the author of Security Analysis on Wall Street: A Comprehensive Guide to Today’s Valuation Methods and M&A: A Practical Guide to Doing the Deal (both from Wiley).

Table of Contents

Introduction	1	(15)
Uneven Playing Fields	1	(5)
Unrealistic Terms	6	(2)
Severe Macroeconomic Fluctuations	8	(2)
Multiple Opportunities	10	(2)
The Emerging Market Quandary	12	(2)
Narrowing Your Focus	13	(1)
Beware of Differences	13	(1)
Summary	14	(1)
What Is an Emerging Market?	15	(26)
Are Emerging Markets Important?	16	(5)
Important Suppliers of Raw Materials	18	(1)
Providers of Inexpensive Labor	18	(1)
Markets for Western Products	19	(2)
Continuing Importance of Emerging Markets	21	(1)
Brief History	22	(1)
History as an Excuse for Lack of Progress	23	(1)
Recognize the Differences	24	(2)
Economic Prosperity	25	(1)
Languages	25	(1)
Unique Cultures	26	(1)
Political Framework	26	(1)
Corruption	27	(2)
System of Law Enforcement	29	(1)
Currency	29	(2)
Currency Devaluation	31	(2)
Causes of Devaluations	33	(1)
Bond Markets	34	(1)
The Stock Market	35	(2)
Venture Capital	37	(1)
Social Organization	38	(2)
Summary	40	(1)
Business Climate	41	(16)
When Do the Barriers Crumble?	44	(2)
Oligopolies	46	(1)
Business Law	46	(1)
Intellectual Property Rights	47	(1)
Physical Infrastructure	47	(1)
Social Services	48	(1)
Workforce	49	(1)
Market Research and Government Statistics	50	(1)
Supply and Distribution Systems	51	(1)
Banking Systems	51	(1)
Currency Regime	52	(1)
Tariffs and Import Licenses	53	(1)
Getting to Know a Partner	53	(1)
Cult of the Chairman	54	(1)
Executives Playing Dumb	55	(1)
Manufacturing Orientation	56	(1)
Summary	56	(1)
What Attracts Multinational Firms to the Emerging Markets?	57	(24)
The Importance of Growth	57	(2)
Growth Perception versus Reality	57	(2)
The Excitement over Real Growth	59	(1)
Growth and Stockholder Value	59	(1)
Basic Principles of Corporate Valuation	59	(7)
Starting with Intrinsic Value	60	(4)
Relative Value	64	(2)
The Price of Risk	66	(1)
Defining Growth Opportunities	67	(3)
Rapid Rise in GNP	67	(1)
New Product Introduction	68	(1)
Market Share Expansion	69	(1)
Consolidation	70	(1)
Participating in Emerging Market Growth	70	(3)
Use Local Contacts	73	(1)
Joint Venture	73	(2)
Greenfield Start-Up	75	(1)
Acquisition	76	(1)
Privatization	77	(2)
Summary	79	(2)
The Export Platform	81	(12)
The Importance of Cost Controls	81	(2)
Variable Cost Savings	83	(2)
Fixed Costs	85	(1)
Capital Costs	85	(2)
Popular Uses of Export Platforms	87	(1)
Natural Resources	88	(4)
Summary	92	(1)
Reasons for U.S. Firms to Avoid Emerging Markets	93	(34)
Gaining Access	94	(1)
Slow Pace Compared to a Developed Country	95	(1)
Normal Business Risks	96	(1)
Normal Business Risks and the Emerging Markets	97	(1)
Why Were the Construction Cranes Not Moving?	98	(1)
Specific Risks for the Emerging Markets	98	(23)
Political Risk	99	(9)
Macroeconomic Risk	108	(2)
Currency Risk	110	(4)
Information Risk	114	(7)
How Should a Western Firm Compensate for the Extra Risk?	121	(4)
Summary	125	(2)
Portfolio Investment	127	(32)
Popularity of International Investing	127	(1)
Beginning of Western Interest in Emerging Market Equities	128	(4)
Stock Market Investing	132	(2)
Initial Motivating Factors behind Portfolio Investing	134	(3)
Diversification	135	(1)
Countercyclicality	136	(1)
Higher Growth	137	(1)
Higher Returns	137	(1)
Security Analysis and the Emerging Markets	137	(2)
Practical Problems with Rational Analysis of Emerging Market Equities	139	(8)
Less Information	140	(1)
Questionable Trading Practices	141	(1)
Unclear Accounting Standards	141	(2)
Few Comparables	143	(1)
Reduced Emphasis on Share Price Enhancement	143	(3)
Liquidity Concerns	146	(1)
Uncertain Registration, Settlement, Clearing, and Custodial Systems	146	(1)
Minority Rights	147	(1)
How to Solve the Problems?	147	(1)
Investment Alternatives	148	(2)
Mutual Funds	148	(1)
Depository Receipts	148	(2)
Direct Purchases of Local Shares	150	(1)
Private Equity Funds	150	(1)
Stock Selection Guidelines	150	(6)
Country	153	(1)
Capital Markets	154	(1)
Industry	154	(2)
Company	156	(1)
Summary	156	(3)
Valuation Case Study	159	(18)
Corporate Overview	159	(1)
Summary Top-Down Analysis	160	(7)
Macroeconomy	161	(1)
Capital Markets	162	(1)
Industry	162	(1)
The Company	163	(1)
Historical Financial Analysis	164	(1)
Financial Projections	164	(1)
Projected Sales	165	(2)
Discounted Cash Flow Valuation	167	(4)
Relative Value Approach	171	(3)
Investment Recommendation and Summary	174	(3)
Commercial Lending and Fixed Income Investment in the Emerging Markets	177	(32)
Emerging Markets and Foreign Lenders	177	(2)
Lenders versus Equity Investors	179	(1)
Credit Analysis Process	180	(4)
Political Risk and Credit Analysis	184	(2)
Mitigating Political Risk	186	(1)
Top-Down Analysis and Credit Evaluation	187	(4)
Interest Rates	191	(3)
Structured Financings and Preferred Creditor Status	194	(7)
Structured Financings	195	(2)
Trikem Export Trust Example	197	(1)
Instituto Costarricense de Electricidad Example	197	(3)
Multilateral Assistance	200	(1)
Debt Financing for Natural Resource Projects	201	(2)
Secondary Market for Emerging Market Fixed Income Investments	203	(6)
Ten Credit Guidelines	206	(3)
Foreign Lenders and Troubled Borrowers	209	(12)
Troubled Companies Defined	209	(2)
Sequence of Events for a Troubled U.S. Borrower	211	(2)
Contrasting Situation for an Emerging Market Borrower	213	(2)
Poor Negotiating Stance for the Western Lenders	215	(2)
Asian Restructuring	217	(1)
Future Developments in Debt Restructuring	218	(1)
Summary	219	(2)
Latin America	221	(6)
Cultural Aspects	221	(2)
Business Interaction	223	(1)
Other Items	224	(1)
Export Base	224	(2)
Direct Investment	226	(1)
Stock Exchanges	226	(1)
Asia	227	(12)
China and East Asia	229	(5)
Negotiating Style	230	(2)
Overseas Chinese	232	(1)
Chinese Economic Reform	233	(1)
India	234	(2)
Self-Sufficiency	235	(1)
Recent Developments	235	(1)
South Korea	236	(1)
Stock Exchanges	237	(1)
Summary	237	(2)
Eastern Europe	239	(8)
First and Second Groupings	241	(3)
European Union	242	(1)
Business Culture	242	(1)
Corruption	243	(1)
Russia	244	(1)
Summary	245	(2)
Africa	247	(12)
Economic Overview	247	(3)
Northern Africa	250	(2)
Francophone West Africa	252	(4)
Anglophone Africa	256	(1)
South Africa	257	(1)
African Stock Exchanges	258	(1)
Summary	258	(1)
Closing Thoughts on Emerging Markets	259	(10)
Increased Risk	260	(1)
Direct Investment	261	(1)
Portfolio Investment	262	(1)
Foreign Lenders	263	(1)
Business Culture	264	(1)
Facing the Challenge	265	(1)
Future Prospects	265	(4)
Notes	269	(2)
Index	271