The Early Days of Emerging Market Investing

Prior to the rise of emerging markets as an asset class, capital flows were dominated by commercial bank loans, bilateral and multilateral lending, foreign direct investment by developed country-domiciled manufacturers, and remittances from citizens working overseas. Early development of emerging stock and bond markets, and the asset class as a whole, was instigated by policymakers seeking to spur broader economic transformation. The US Treasury Department’s moves to address the 1980s “LDC” debt market crisis resulted in emerging market bonds, while attracting foreign capital for private sector development underpinned the International Finance Corporation’s work on stock market creation. Foreign institutional investor interest surged in the early 1990s with dozens of mutual funds launched although the asset class was not fully embraced by long-term investors from global pension funds and insurance companies for nearly another decade. Many early macro-economic and market liberalization moves were ultimately undermined and/or totally dismantled by domestic political considerations. However, some like privatization of zombie state-owned companies, have been re-introduced to address gaping debt and deficit issues in the wake of the global pandemic and war in Ukraine, with IMF programs again a distinct factor.