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Inflows of external finance to emerging markets rose again in 2006 to $1065bn from $802bn in 2005. A new edition of IFSL’s report External Finance to Emerging Markets notes that inflows have recovered steadily from a low point of $183bn in 2002. Asia is the biggest destination for such external finance, followed by central and Eastern Europe, Latin America and the Middle East. Apart from South Africa, sub-Saharan Africa remains peripheral.
The UK is a major source of emerging markets’ external finance, with a leading 16% share of their international bank finance, as well as a 11% share of portfolio investment, second only to the US with 36%. The London Stock Exchange is the most important destinations with 195 foreign listings of companies from emerging markets, ahead of New York Stock Exchange’s 177 foreign listings.
Substantial scope remains for further growth in external finance as emerging markets account for only 7% and 9%, respectively, of global inflows of portfolio investment and international bank lending, a reflection of their capital markets being at an earlier stage of development. By contrast, they attracted a 36% share of foreign direct investment in 2006.
