Investment Banking | Global Reach

Investment Banking emerging Markets

Banking Investment / July 22, 2021

“I notice you’ve done a lot of interviews with readers in emerging markets and other developing countries, but what’s so special about them?

I get the basics from what you’ve written, but why are they important? What’s the big deal about emerging markets?

You raise a good point: there have been lots of interviews about different groups and regions, but never any mention of why specifically they are important.

So, why do emerging markets get so much attention?

And will they take over the world within the next 50 years?

The Usual Argument

Some news host / newspaper columnist / blogger shows GDP growth rate projections 50 years into the future and says that such-and-such market will surpass the developed world by a certain date because:

  • The country is just becoming industrialized and has tons of room to grow.
  • The middle class is relatively new and growing rapidly.
  • The financial markets are not developed yet, so development there alone will spur growth.
  • If it’s already growing at 10%, clearly it will continue growing at 10% for 50 years, right?

For investment banking, the argument is that more and more deal activity will shift to emerging economies because more companies will be created and more wealth will be generated there.

As companies grow, they need to go public, raise capital, and buy other companies – so investment bankers will spend more and more time on these developing regions and earn more of their fees from there.

As that happens, talent will shift away from developed countries and flock to the “New World” where there’s room for superstars to come in and dominate.

Why I’m Skeptical

Most GDP growth rate graphs go up and to the right… and then even further up and to the right.

It’s like the projections that you create as an investment banker for overly optimistic management teams: interesting to look at, but difficult to take seriously.

No matter how spectacular your economy is, it won’t grow at 8% or 10% or any other aggressive number into eternity.

And remember that far-in-the-future (or even near-in-the-future) projections have a history of being wrong, whether you’re looking at the Soviet Union in 1960, Japan in 1985, or Time Magazine and Jeff Bezos in 1999.