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Emerging market IPOs turn hot investor picks

(China Daily/Agencies)
Updated: 2009-12-02 08:04

Initial public offerings (IPOs) in emerging nations are returning about 15 times more than IPOs in developed countries even as companies from China to Brazil flood the market with more shares than ever.

Listings by Longfor Properties Co, Banco Santander (Brasil) SA and Kuala Lumpur-based Maxis Bhd helped raise $39 billion in emerging markets during the three months ending on Monday, data compiled by Bloomberg show. That outstrips the amount sold in IPOs from 23 industrialized nations by $21.3 billion, the biggest gap since at least 2000, the data show.

While IPOs in developing markets rose 21 percent and offerings in the Chinese mainland rallied 88 percent in the past three months, the "avalanche" of sales may help spur a 20 percent drop in share prices, according to Mark Mobius.

"Investors are a lot more confident about emerging markets than they are in developed markets," said Shane Oliver, head of investment strategy at Sydney-based AMP Capital Investors. "Investors realize that the growth potential is in the emerging world."

Thirty-seven companies from the nations in the MSCI Emerging Markets Index have sold shares in public offerings this month, bringing the numbers of IPOs since September to 149, according to data compiled by Bloomberg. The sales have been propelled by a 98 percent rally in MSCI's gauge of developing countries since March 2.

The surge in offerings will put "downward pressure" on prices, according to Mobius, who oversees about $25 billion of developing-nation assets at Templeton Asset Management Ltd. The MSCI Emerging Markets Index slid 2.5 percent last week, the first decline in a month, as Dubai's attempt to delay debt repayment unnerved investors.

"I've been cautious because I've felt that there would be a significant correction," Mobius said from Hanoi in a Bloomberg Television interview on Nov 27. "With these IPOs in the pipeline, that will tend to suppress the emerging markets."

No US IPOs are scheduled until Dec 9, as the pace of offerings slows after the Thanksgiving holiday, according to Bloomberg data.

Companies in developing nations have grown more successful in attracting money since March, when equity markets bottomed after the worst financial crisis since the Great Depression.

IPOs in emerging markets raised $677 million more than those from industrialized countries in the three months ended in April, data compiled by Bloomberg show. That advantage has now widened to $21.3 billion in the September-to-November period.

High growth

Companies in emerging nations are offering more shares as economists project that growth will outpace the US by as much as three times. China's gross domestic product will expand 9.5 percent next year and Brazil's will rise 3.8 percent, estimates compiled by Bloomberg show. That compares with 2.6 percent in America and 1.2 percent for the euro zone and Japan.

"Emerging markets are where everyone wants to have their money," said John Ditierri, who helps oversee $11 billion in equities at Emerging Markets Management. "If you go through the list of investment options, you want to have a higher allocation than you did before."

Buyers of IPOs from emerging markets have also been rewarded with bigger gains. Since September, companies with initial offerings have climbed a median 21 percent in the first month of trading, data compiled by Bloomberg show. That compares with a 1.4 percent advance by IPOs in developed nations.