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Emerging markets are outpacing advanced economies in bringing companies to market. Initial public offerings in China, India, Poland, and other developing nations raised $29.3 billion in the April-to-June period, almost three times the amount raised in industrialized markets. Emerging markets have won the IPO contest in each of the past five quarters, the longest run since at least 1999, according to Bloomberg data.
The streak could continue next quarter, when Agricultural Bank of China sells up to $28 billion of stock in Hong Kong and Shanghai. "The investor appetite is just not there right now" for IPOs in industrialized nations, says Robert Froehlich, senior managing director at Hartford Financial Services Group (HIG).
Stock markets around the world declined over the past three months. Investors worried that the global economic recovery will slow, as countries including Greece, Portugal, and Spain struggle to fund their debts. At least 47 initial offerings worldwide have been shelved since March.
While emerging markets were not immune from the decline—the MSCI Emerging Markets Index sank as much as 18percent this quarter—companies, many of which were government-owned, pushed ahead with their share sales. State-controlled PZU, Poland's biggest insurer, raised $2.7billion in April in Europe's largest initial offering since 2007. The IPO was part of Poland's efforts to raise as much as $10billion from asset sales to help finance a widening budget deficit and curb borrowing. SJVN, the state-owned operator of India's largest hydropower plant, raised $236million in an initial offering in May.
Ken Fisher, chief executive of Fisher Investments in Woodside, Calif., believes investors seeking big payoffs will continue to snap up developing-market IPOs. Emerging economies tracked by the International Monetary Fund are forecast to expand 6.3 percent this year, almost three times the 2.3 percent projected for advanced economies. "Emerging markets have a fundamental growth force behind them, which tends to make people more optimistic about them," says Fisher. "That quality makes people more prone to take a flyer on something in the emerging markets, where they wouldn't want to in the developed world."
The bottom line: As developed economies struggle with heavy debt loads and sluggish growth, investors seeking big gains are turning to emerging markets.