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$1 trillion says that EM is back

Emerging markets are back. That's the conclusion of the latest quarterly debt survey by Emta, formerly the Emerging Markets Traders Association. In the second quarter of 2003, total emerging-market debt trading passed $1 trillion for the first time in five years.

Trading volumes peaked at $1.62 trillion in the first quarter of 1997 but were devastated by the series of crises that started in Asia later that year and seemed to continue until the Brazilian presidential election at the end of 2002. But emerging markets have been getting attractive since then, with investors that had been sniffing at the asset class for a while finally deciding that the returns are worth the risk. "This is money that has committed itself to the asset class for some time," says the head of emerging-market trading at one New York bank. "They did their due diligence: it's not fast money."

History lesson

Still, with volumes approaching those of the fluffiest days, there's always the worry that history might repeat itself. "The prolonged rally earlier this year encouraged greater participation from tactical asset allocators and momentum investors," says Jonathan Bayliss, head of quantitative strategy at JPMorgan in London.

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