One of the key issues in developing local securities markets as a stable source of funding for corporates is the development of an adequate domestic and international investor base. The scale and stability of that investor base will be influenced fundamentally by the nature of the returns and portfolio diversification benefits associated with holding local securities. This chapter therefore analyzes emerging market equities from two perspectives. First, it looks at the performance of this asset class from the perspective of global investors and considers how this performance may affect the scale and volatility of equity-related capital flows. Second, it examines emerging market equities as an alternative source of finance for the corporate sector, and analyzes how equity issuance in emerging markets has fared in relation to bank financing.
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