Amid slowing growth, rising interest rates and currency volatility, some US$33 billion has been withdrawn from emerging market stock and bond funds this year, exceeding the US$29.2 billion outflow for all of 2013.
Yet annual private equity fundraising for emerging markets is running 32% ahead of last year, according to data released by Palico, an online market place for the global private equity industry.
Some US$6.5 billion has been raised by emerging market private equity funds this year, while these funds’ share of global fundraising stands at nearly 17%, almost double last year’s 8.5%.
In general, experienced private equity investors find short-term volatility appealing, so emerging markets represent a buying opportunity. This has a lot to do with the roughly ten-year investment horizon of private equity, which bridges the ups and downs of economic cycles.
Emerging markets represent a highly diverse range of countries in various stages of development, but they tend to share high long-term economic growth rates, rapidly developing middle classes and relatively low rates of private equity investment.
The approximately 70 countries classified as "emerging" or "frontier" by index providers account for as much as 85% of the world’s population and more than half of global GDP.
The most striking recent development in emerging markets is the rising popularity of frontier markets. Investment in frontier markets rose to 12% of private equity-backed emerging market asset purchases in 2013, up from 6% the year before, according to the Emerging Market Private Equity Association.