Emerging Market IPOs Set to Best U.S. IPOs

NEW YORK (TheStreet) -- Although the initial public offering (IPO) market in the U.S. and other developed countries is improving, activity in the developing economies will eclipse listings in the developed countries. During the second quarter 2010, companies in emerging economies raised close to $29.3 billion, almost triple the amount invested in the developed countries.

Part of the disparity comes from the European debt crisis, which saw many stock indices in the developed countries tumbling. Investors are cautious about overextending in the U.S. IPOs on concerns related to volatile market conditions and recovery in the U.S. economy, and the impact of European debt crisis.

"Emerging markets have a fundamental growth force behind them, which tends to make people more optimistic about them," Kenneth Fisher, CEO of Fisher Investments told Business Week. "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 U.S. IPO activity has returned, with more than $5 billion having been raised by 39 companies between April and June, according to a report by PricewaterhouseCoopers (PwC). During the same period last year, only $1.6 billion was raised by 12 IPOs. Columbus-based apparel retailer Express ( EXPR), raised $162.9 million on the NYSE in May, while electric-car company Tesla Motors ( TSLA) raised $226 million in June. Of the 39 new listings, 30 are domestic, and 9 are foreign private issuers that raised $540 million. Six of the foreign issuers are Chinese companies.

China could emerge the largest IPO market in the world, overtaking Hong Kong. IPO activity is robust and is expected to raise more than 500 billion Yuan ($73.5 billion) this year, according to PwC. So far this year, firms from China raised 212.7 billion Yuan ($31.3 billion) from 176 IPOs. Last year, there were no listings during the same period. In the whole of 2009, China was host to 99 IPOs. For 2010, this number will triple, as around 300 IPOs are expected to be listed.

The Agricultural Bank of China raised $19.23 billion in a recent IPO, besting the Industrial & Commercial Bank of China's $21.9 billion IPO in 2006. If AgBank, China exercises the overallotment option, it would rank as the world's biggest IPO until date.

China's strategy to turn Shanghai into a world economic powerhouse, on par with London or New York, has already put into motion plans to allow foreign companies to list on the Shanghai Stock Exchange. This will allow foreign companies, such as Wal-Mart Stores ( WMT), Coca-Cola ( KO), and HSBC Holdings ( HBC) to have their secondary listings in Shanghai.

This momentum could encourage China's firms trading only on exchanges in the U.S. to list on domestic exchanges. Many companies that are listed only outside China and Hong Kong tend to be undervalued, as they are relatively unknown and experience home-bias from U.S. investors.

Up until the last couple of years, the Shanghai Composite Index catered only to large state-owned firms, while many multinationals listed in Hong Kong. Most companies have a double listing in China and Hong Kong, to attract international investors. Many of the best private companies shun listing on China or Hong Kong exchanges because of bureaucratic hassles.

Other developing countries are also launching impressive IPOs. In India, Coal India, the world's largest coal producer, is planning to raise $3.2 billion in October. Brazil's Petroleo Brasileiro (Petrobras) ( PBR) is planning to raise as much as $25 billion through a stock offering to minority investors in September. This would make it one of the largest deals of the last decade. In April, Poland's biggest insurance company, PZU, raised $2.7 billion. This was the largest IPO in Europe since 2007, and the largest in Poland's domestic market.

Karvy Global Services (www.karvyglobal.com), a subsidiary of the Karvy group (www.karvy.com), provides specialized research in asset classes including stocks, mutual funds and insurance to leading Wall Street firms.

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