Wei Li

Course Description 

This course explores investment and valuation issues that are unique to emerging economies.  These economies, with low per capita income, will likely provide substantial growth opportunities for global investors. But the risks of investing in these economies are not only substantial but also different from those in developed economies.  In this course, we introduce a set of tools and models that help future financial managers make better investment decisions in emerging markets. We will cover both theoretical and practical sides of direct and portfolio investments in emerging markets through cases, articles, homework exercises. While we will analyze portfolio investments in emerging markets, our main focus is on direct investment and valuation (corporate finance) issues there.   

Specifically, the course consists of the following four modules:

1. Risks and Project Finance

2. Capital Markets

3. Valuation

4. Portfolio Management

The course has the following objectives:

1. To develop an understanding of the emerging financial markets, and their differences from financial markets in developed economies even in the era of globalization.

2. To develop an appreciation for both the opportunities for growth in emerging markets and the kinds of risks that are more pervasive in emerging markets: corruption and the lack of rule of law and sound corporate governance.

3. To develop an understanding of how to identify, assess and mitigate risks in emerging markets; and how to allocate risks and returns to achieve greater efficiency (low-cost financing and optimal behavior).

4. To expand on the knowledge of CAPM and introduce alternative models on how the cost of capital is estimated in emerging markets.  Why do we need new frameworks for estimating the cost of capital?  What makes valuation in emerging markets different from that in the developed market? 

5. To construct and use DCF models for valuing risky assets in emerging markets.  In addition to using alternative approaches to estimating the discount rate for emerging market projects, we will also consider how currency risks and other risks should be handled in a DCF framework.

6. To develop an understanding of the value of using real options in making investment decision in emerging markets, and to learn how to estimate the hurdle rate associate with an emerging markets investment. Given the high volatility in investment returns in emerging markets, real options are valuable and should be exploited to create value.

This course assumes that students have taken Valuation in Financial Markets.  It is created for students who wish to pursue careers in investment banking and international finance.  

Reading Materials/Cases

The materials in this course will be delivered through cases, articles from practitioners' journals (e.g., Journal of Applied Corporate Finance), and research articles available on the internet. Materials will be distributed through the following three means:

1. Course website. I will make extensive use of the course website to provide up-to-date information about this course and to distribute any materials that are copyrighted but do not require a payment from you. Materials posted on the website will include:

• class assignments,

• homework assignments,

• required reading materials that are available on the internet,

• data spreadsheets that are needed for class preparation,

• supplemental (not required) reading materials, and

• any updates on cases.

Please bookmark the course website:
http:\\faculty.darden.virginia.edu\liw\emf

2. Coursepack. A coursepack is available for purchase in Darden Exchange.

Students should also have access to a copy of the Brealey-Myers text, Principles of Corporate Finance, 7/E. Chapter 22 of the text is required reading for this course.

Grading

The course grade will be determined as follows:

*Evaluation of guest speakers also counts towards class participation grade.

**Homework should be done individually.