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Capital Markets

Emerging-market equities come of age

The asset class is likely to outperform emerging-market debt as more funds enter the market.

Emerging-market equities are back in vogue. Whether it is primary-market activity, secondary-market trading volumes or performance levels, the asset class is on a roll and analysts reckon there is much more to come.

To gauge how much interest is building in emerging-market equities, consider two deals that were priced last month. On September 12, Deutsche Telekom sold its 10.1% stake in Russia's Mobile TeleSystems, raising $1.5 billion within a matter of hours. A sale of local shares, it is the biggest Russian equities deal so far this year.

That same week a consortium, led by Turkish conglomerate Koc Holdings, made a successful $4.14 billion bid for a 51% stake in local oil refiner Tupras. The amount offered was well above market expectations and prompted the Istanbul Stock Exchange to rally by 1,000 points immediately after the deal.

Liquidity levels are surging. Flows into emerging-market equity funds this year are just under $9 billion, nearly three times total inflows in 2004, according to research outfit EmergingPortfolio.com Fund Research (EPFR). The emerging-market equity markets have rallied before, most notably in 2003, but this advance is shaping up to be different.

Two issues stand out.

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