The volume of share offerings in emerging market countries outpaced developed nations for the first time in more than a decade during the third quarter. Developing nations raised an estimated $138 billion through initial public offerings (IPOs) and other sales -- more than double the $62 billion raised in industrialized nations.
"You are seeing superior growth trends compared to countries in developed markets," says Cristina Panait, vice president and emerging market strategist of the $400 million Payden Emerging Market Bond Fund. "The fiscal burdens [of emerging market nations] are a lot smaller and the level of indebtedness is smaller... From a fundamental perspective, they are best positioned for future growth over the next three, five and ten years."
Stock IPOs alone in emerging nations totaled $42.3 billion during the quarter, exceeding those in developed nations by a record $31.4 billion according to Bloomberg. China and Brazil saw record issuance during the quarter, which included the record $78 billion IPO of Brazil's Petrobras, the state-run oil company. Meanwhile, issuance in the U.S. is showing signs of slowing. On Wednesday, Liberty Mutual, the 10th largest property and casualty insurer in the U.S., postponed its planned $1.2 billion IPO due to unfavorable economic conditions.
Analysts point to higher economic growth rates in emerging markets as one reason share offerings are on the rise there. The International Monetary Fund projects emerging market economies to grow 6.5% in 2011 as compared to a growth rate of 2.4% for developed nations and 2.6% for the U.S.
Growth in industry and financial systems in the developing world are also contributing. More emerging market corporations are turning to the capital markets for capital to expand at the same time that investors are seeking higher yields.
Additionally, after years of trailing the U.S. and other developed nations, many emerging market countries are becoming fundamentally sound economically. They have established more independent central banks and started using mechanisms like floating exchange rates to strengthen their currencies.
In contrast, many developed nations are still struggling to manage excessive amounts of debt while economic growth stagnates.
Given these trends, analysts expect emerging market share issuance to continue to outpace that of developed nations into the fourth quarter.