Emerging markets have become an important focus for global investment banks in recent years. With rapid economic growth and rising middle class populations, developing countries offer significant potential despite greater political and economic risks. This article will examine the opportunities and challenges faced by investment banks in emerging markets during 2020.
Expanding presence across Asia, Latin America and Africa
Many large investment banks have been aggressively expanding their operations in emerging markets to capitalize on growth opportunities. According to Coalition, a financial data provider, the Asia-Pacific region accounted for around 17% of global investment banking revenue in 2020, up from 13% in 2016. Latin America and Africa also saw rising investment banking activity and deal volumes despite the pandemic.
Banks like Goldman Sachs, JP Morgan and Morgan Stanley have set up new offices, hired more bankers and expanded product offerings catered to local needs. They are advising governments and corporations on mergers, IPOs, project financing and more. Major deals include advising Saudi Aramco on its record $29.4 billion IPO and Petrobras on $13.6 billion in divestments.
Navigating political risks and economic uncertainty
While alluring, emerging markets also pose greater political, regulatory and macroeconomic risks. Investment banks need to closely track political developments, policy changes, currency movements and business cycles that can impact clients and deals. For instance, escalating US-China tensions led some Chinese companies to delay planned US IPOs in 2020.
The pandemic triggered sharp GDP contractions across emerging markets in 2020. Investment banks helped clients raise liquidity, restructure debt and navigate sudden market volatility. They also leveraged long-term opportunities like Latin America’s infrastructure needs and Asia’s rapidly growing digital economies. Local partnerships and on-the-ground expertise is key to succeeding despite uncertainty.
Adapting business models and diversifying products
To compete in emerging markets, investment banks are tweaking operating models and diversifying product suites beyond traditional M&A and equities. Many are expanding local currency financing, fixed income trading, derivatives structuring and prime brokerage services.
Banks are also targeting SMEs and new economy sectors like fintech, logistics and e-commerce. With relaxed regulations, emerging markets offer more room to design bespoke structured products and engineered solutions. Partnerships with fintechs and local brokers are helping global banks expand distribution networks cost-effectively.
At the same time, investment banks are working to improve risk management, compliance standards and operational controls to address idiosyncratic challenges in these markets.
In 2020, leading investment banks expanded emerging markets presence despite pandemic-led uncertainty, leveraging strong long-term growth potential. Adapting business models, adding local expertise and closely tracking risks are key to succeeding in developing economies going forward.