Dear Graduates: Before Making The Leap Into Emerging Markets, Read This

By Robert Abad

With volatility raging across global markets, many of my students have been asking:

“Do you think this the right time to jump into emerging markets (EM) ?”

“This seems like a great time to learn about these markets – am I right?”

“What areas in EM should I be looking at?”  “What should I be prepared for?”

Before rolling the dice on any EM opportunity (because that’s how you should think about it at this time), read these words of hard-earned wisdom.

• EM is the most exciting and mentally stimulating asset class as it offers you a front row seat on global developments, but it’s also the most demanding. You won’t have the luxury of choosing what to focus on or the time to think through all of the issues.  Imagine taking the hardest group project you worked on in school, doing all of that work on your own, and coming up with a conclusion that makes sense to your boss in less than an hour.  That’s what you’re signing up for.

• From the very beginning, your career momentum in EM will be a function of market conditions; the financial strength of your firm; senior management’s conviction to EM; your boss’ leadership skills, crisis management experience and investment savvy; the quality and loyalty of your peers; client feedback; and, most importantly, your sense of self-determination and self-preservation.

• The EM learning curve is steep and merciless.  Buy a world map, a fresh notebook and a box of pens.  Then buckle up for the ride because global news doesn’t take a holiday.

• EM demands a voracious reading schedule that (surprise, surprise) shouldn’t include mainstream news and popular “go-to” market-related websites and blogs.  Instead of obsessing over the latest celebrity-authored economics and finance texts, brush up on sources that reference and analyze world history, politics, geography, and culture.  Following the global crisis, we’ve stumbled into a brand new paradigm; you need to think holistically (i.e., across various disciplines) to make some sense of this evolving world.

• You should invest in continuing education, but make it worthwhile.  At the top of the list: international relations. One course is more relevant for a budding EM analyst than several business school courses or professional seminars combined (you can learn all of that content on-the-job.)  Nourish your mind with books that contain maps and foreign languages rather than books with formulas and pie-charts.

• Be ready to – literally – go outside your comfort zone, and don’t fight the feeling when facing new extremes.  You mature professionally and personally by seeing different parts of the world, meeting new people, and working through challenging situations, especially through the fog of jet lag, insecurity, and fear.

• Remember that working in EM is not a free passport for a jet-setter lifestyle.  You have a professional and fiduciary obligation to come back to the office armed with impressions and views that can help your team and clients.

• If you’re not willing to travel to see what you’re buying or selling in EM (either as an analyst or investor), then you’re literally relying on other people’s assumptions and, even worse, hope to bail you out.

• If you’re not allowed to travel for whatever reason, then find a firm that’s serious about investing in their EM business and improving the quality of the team.

• Be adventurous, opportunistic and spontaneous.  Initially, you’ll feel lost when visiting new places, but don’t be afraid to leave your hotel compound and engage cab drivers, shopkeepers, waiters – people directly impacted by conditions or circumstances you can only read about.  Locals can offer you more passionate insight on domestic and international affairs than the talking heads on television.

• Remember that every EM story is unique.  Avoid generalizations, and don’t use cookie-cutter analysis as a shortcut to success; doing so will only shorten your survival rate in the business.

• Don’t be overly confident about your quantitative skills or your ability to design sophisticated models.  In EM, crises stem mostly from non-quantifiable risks and unanticipated timing.  Indeed, hard-core “quants,” country risk scoring frameworks, sovereign and corporate ratings models and early warning systems have fallen short time and again.

• If you’re interested in joining the EM sell-side, the field is pretty wide: research, trading, sales, capital markets, risk management.  However, chances are high that a back office support role will be your foot in the door.  Put your ego aside and learn the business inside out.

• If you’re interested in joining the EM buy-side, do your homework before accepting that “exciting” sounding job with that “exciting” sounding EM hedge fund.  Will that firm survive this type of market?  You need to understand whether their business model is vulnerable to market volatility (the good old days are over). Hedge your career risk from the start by asking questions.

• Before looking at the EM sell-side or buy-side, take a look at how many sovereign and corporate debt issuers there currently are in the widely used JP Morgan benchmark EM indices.  It’s a massive increase since the 2008 global financial crisis. Now try to figure out why Wall Street headcount in the EM space has declined over the past few years.  Professional burnout, “market Darwinism” or both?

• If your ultimate career goal is to become an EM portfolio manager, be prepared for a shadow career in psychiatry.  On top of the job pressures, your colleagues and support staff will very likely look to you for guidance, leadership, political support and/or emotional reinforcement even as you’re wrestling with your own demons.

• Do your homework on your prospective boss. Put aside the smiles and niceties during the interview dance and do a deep dive on their background and reputation in the industry.  The EM community is very small and word quickly gets around on “who is who.” You should be able to build a decent mosaic of the person you’ll be supporting through thick and thin.

• It would be wise to steer clear of any effort or person that takes EM acronyms seriously.  BRICs, MINTs, ASTERISCs and other nonsensical labels have only served to trivialize the asset class.

• If you think you’ve found the right EM platform, then it’s time to look for the right mentor (whether there or elsewhere). Finding the right person for career guidance and support can make the difference between you growing up to be a future leader or a simple “yes” person.

• It would be highly beneficial if the firm you join has an established developed markets team.  Internally generated views on global interest rates, exchange rates and commodities will help you think about EM from a global perspective. Remember that EM has never been and will never be a “decoupling” story.

• To be a credible EM analyst, make sure you work at a firm where you can get your key inputs from credible people.

• To be a successful EM analyst, make sure you work at a firm that views failure as an important part of career development.

• If you’re going down the path of risk management, remember that no EM risk process will work if the business doesn’t understand risk management; conversely, no EM risk process will work if risk management doesn’t understand the business.  Get the perspective from both sides.

• Remember that scared money doesn’t make money. The sooner you’re willing to embrace EM volatility and test your convictions, the better off you’ll be.

• Many before you have made the leap to EM; just know that those who fell short and crashed were victims of their own hubris.

• Don’t forget that “caveat emptor” applies to every EM recommendation – and job offer.

• Last, but not least, the “death” of the EM asset class has been touted by the media time and again.  Don’t let the doubters and the tired rhetoric of “gloom and doom” get in the way of what could ultimately be a memorable journey.

With these thoughts in mind: be bold, strike, and don’t look back!

P.S. For suggestions on what books to read, visit www.embracem.org