Emerging markets aren't content to merely turn in economic growth numbers that make the West look anemic. They now also dominate one of the engines of sustainable growth, initial and follow-on public offerings. "This year's been hugely successful," says Mark Warburton, head of equity capital markets in Asia for Macquarie Group Ltd.

Despite some fears of a bubble in emerging markets, Warburton and others insist that the 2010 performance is no aberration. They predict the dominance of China, India, Brazil and other fast-paced economies in new equities issues will continue, an offshoot of economic growth and the desire of global capital to tap into that growth. "What we need to realize is that emerging markets are still discovering the power and the benefits of the equity markets," says Gregory Ericksen, Ernst & Young's global vice-chair for strategic growth markets. He adds that while the IPO pipeline in the U.S. is growing, the "unprecedented demand of IPOs" in emerging markets has reduced the U.S. share of global issues "to an all-time low."

General Motors Co. aside, American and Western European companies appear to be practically afterthoughts when it comes to IPOs.

For the first nine months of this year, companies from the BRIC nations of Brazil, Russia, India and China (with Russia really a marginal player) registered 386 IPOs totaling approximately $88 billion, according to Ernst & Young. By dollar value, that equaled almost 60% of all IPO capital raised worldwide.

The third quarter of 2010 was especially lopsided. According to Ernst & Young, China and Hong Kong combined for 114 IPOs, totaling $40.4 billion. That equaled almost 77% of all new IPO capital raised globally. (By contrast, the U.S. totaled $3.1 billion.) During that period, emerging markets comprised 10 of the top 20 IPOs. Led by China, the BRIC nations accounted for almost half the world's total number of new issues, according to Ernst & Young. "China is like a huge corporation, spinning off its high-growth divisions into the public markets," marvels Ericksen.

Some individual public offerings have been enormous. In July, the Chinese government-owned Agricultural Bank of China Ltd. came to market in Shanghai and Hong Kong, and sold $22.5 billion worth of shares in an initial public offering. Three months later, AIA Group Ltd., the Asian life insurance unit of American International Group Inc., did almost as well, raising $20.51 billion in a Hong Kong IPO.

The real eye opener came in September and on the other side of the globe. Brazilian oil giant Petróleo Brasileiro SA, commonly known as Petrobras, launched a follow-on offering in São Paulo and New York. Petrobras needed significant new capital to acquire offshore oilfields from the Brazilian government and develop what could be the single biggest petroleum reserve on the planet. Petrobras succeeded in spectacular fashion. It raised a staggering $70 billion, by far the largest equity capital offering in history.

"Petrobras is such an important stock, most institutions understand they have to own some of it," says Nicolas Grabar, a New York-based partner with Cleary Gottlieb Steen & Hamilton LLP, which represented the oil company on the issuance. "We know that the offering attracted U.S. and European institutional investors, Asian and Middle Eastern investors, and of course Brazilian investors."

Equity offerings stand at the confluence where a surge in domestic emerging markets meets global capital flows. To bolster returns, developed countries' institutional investors -- pension and mutual funds, insurance companies, endowments, money managers -- are staking more and more money outside their own borders. Emerging-markets equities tap into this rich vein of Western institutional capital, partly through new issues. According to Warburton, U.S. and Western European institutional investors subscribe to 40% to 50% of the "typical IPO" in Hong Kong, while Asian investors buy the rest. Warburton hastens to add, however, that this may underrepresent Western institutions, which often direct their purchases through Asian offices.

Mammoth state-owned enterprises have proved especially attractive to institutional investors. With long track records, often-captive markets and strong balance sheets, these are considered safe bets. "Large-scale European and American pension funds and sovereign wealth funds are showing a huge appetite for government-backed IPOs," says Akil Hirani, managing partner of Mumbai-based law firm Majmudar & Co.

These days, however, Western investors are on the prowl for more than just state-owned companies. "Some of the hottest IPOs have been smaller China-related consumer stories," which appeal to Western institutions, notes Warburton. Macquarie managed 11 IPOs in Hong Kong in 2009 and 11 so far this year. It has 20 more in the pipeline, he says.

After decades of uncertainty, Western institutional investors also seem to be gaining confidence in emerging-markets exchanges. India's regulatory regime, for one, is getting better at policing information and safeguarding standards, says Rajiv Gupta, a Singapore-based partner at Latham & Watkins LLP. "It's quite a robust regime for disclosure." Gupta adds that India has created a credit rating system for IPOs where credit agencies assign number grades to new issues.

Domestic investors, of course, still dominate these markets. However, critics fear some emerging markets suffer from an unhealthy dependence on Western institutional funds, which can flee as quickly as they can appear. Take India. Net foreign investment in equities for the year through Nov. 19 totaled $28.6 billion, according to data compiled by the Securities and Exchange Board of India. (At the end of October total market capitalization stood at $1.626 trillion, up 42% in a 12-month period, according to the World Federation of Exchanges.)

The Indian market "depends on the risk appetite overseas," says an Indian private equity executive who asked not to be identified. In India, local insurance and pension funds can't invest in equities, so Western capital is just about the only institutional game in town.

Right now capital isn't just flowing into emerging markets, it's gushing. According to the Institute of International Finance Inc., a global association of banks and insurance companies based in Washington, net portfolio investment this year in emerging markets could total $186.5 billion. That's 3 times the average during the five years from 2005 to 2009. Emerging Asia accounts for about half. Next year, the institute projects there will be some trailing off, but not much, with net portfolio investment estimated to total $143 billion.

Cambridge, Mass.-based Emerging Portfolio Fund Research Inc. tracks fund flows. According to its data, net flows into dedicated emerging-market funds total $79 billion year-to-date, on track to exceed last year's record $85 billion. Of this, China-bound investments total $15.7 billion, while Brazil hit $11.2 billion and India $6.6 billion.

Emerging markets "benefit from greater risk aversion. They benefit from less risk aversion," says Brad Durham, EPFR Global's co-founder and a managing director. He laughs. "In 20 years covering emerging markets, I never thought I'd be saying that. I guess they call that a 'sweet spot.'?"

The U.S. Federal Reserve's recent efforts to ease monetary policy will only bolster the torrent of money moving into these markets, just about everyone agrees. Institutional money seeks not only greater exposure to faster-growing economies, but to hardening currencies and higher interest rates. "Institutional investors go where they think they can get the best returns," says Grabar. "It has to do with the quality of the issues, a lot of it to do with underlying fundamentals, higher interest rates and an appreciating currency."

The supply of new public issues in emerging markets shows no signs of slowing, fueled by domestic demand and offshore interest. Pipelines remain full.

In China, for example, "the average wait to list" is now two years, says a Beijing-based lawyer, who adds that "a lot of smaller companies are considering an OTC listing in the U.S." because they've grown impatient over the wait. In Brazil, the Petrobras follow-on was so monumental and demand for the issue so all-consuming that other companies decided to postpone their own issues until Petrobras could be digested, says Francesca Odell, another New York-based Cleary Gottlieb partner. She believes 2011 could be a banner year for new offerings. "It could come close to the 2007 [peak]," she says.

IPOs help fuel emerging-markets stock exchanges, which are becoming deeper and more liquid and, by and large, able to absorb larger amounts of institutional investments. (China is more complicated in this regard.) Emerging-markets IPOs propel Western exchanges as well. Of the 80 IPOs on the New York Stock Exchange this year through Nov. 17, 16 are Chinese companies, a record. Ten more Chinese companies are in the queue for the rest of the year.

On the NYSE last year, the biggest IPO was Banco Santander Brazil, which raised $8 billion. This was the best of both worlds: A subsidiary of the Spanish banking giant Banco Santander SA, Banco Santander Brazil combined the imprimatur of an established, global financial powerhouse with the profitability and growth prospects of an emerging economy.

This year, the best new performer on Nasdaq is MakeMyTrip Ltd., India's largest online travel agency. Its $70 million IPO debuted in August, and the stock has doubled in price since then. MakeMyTrip was the first Indian company to list in New York since Sterlite Industries India Ltd. launched an IPO in August 2007. Still, heightened demand in India for new issues creates rich domestic valuations and a rethink about going abroad. "MakeMyTrip performed so well, it's created huge interest among Indian corporations," says Michael Sturrock, who leads Latham & Watkins' Singapore corporate practice and who was an adviser to the travel company on its IPO. "We're getting a number of calls from investment bank clients on Indian IPOs."

In the past, Indian companies listing overseas tended to be IT-related. Judging from recent inquiries, that won't be the case going forward. "Now, it's much broader," Sturrock says.

Some fear all this activity could exacerbate overheated markets, beset by volatility and a fair bit of emotional frenzy. Swings are dramatic. One day earlier this month, the Shanghai Stock Exchange composite index plunged more than 5%, fueled by concern that Beijing's efforts to curb inflation could depress economic growth. "Markets are very hot," says one American investment professional based in Asia who declined to be identified. While he doesn't necessarily anticipate a bubble bursting, he does foresee "for the next couple years in Asia, feast and famine, feast and famine."

Not everyone agrees. "We don't think there's a bubble in equity," Warburton says, while acknowledging China's residential housing market is frothy. "Eight, nine, 10% economic growth takes care of that."

"As long as liquidity stays strong, emerging markets will be fairly robust," adds Hirani. There were fears earlier this year of a bubble in India, he says, but that fear is now receding.

Governments in emerging economies continue to see the stock market as an important mechanism for raising capital, primarily by selling off corporate stakes they own. The Russian government, for example, wants to raise upward of $60 billion by partially privatizing state-owned companies, including OAO Rosneft Oil Co. According to a London-based lawyer with extensive dealings in Russia, while details have yet to be worked out, the expectation is that at least some of this will be accomplished through IPOs and follow-ons.

More immediately, the Indian government of Prime Minister Manmohan Singh has announced intentions of raising more than $9 billion through the sale of shares in state-owned companies for the fiscal year ending March 31, 2011. This partial privatization, called "disinvestment" in local parlance, is a fundraising mechanism. "The government is trying to direct significant amounts of money to infrastructure and budget deficits," says Hirani.

The biggest example yet took place last month when Coal India Ltd., the Indian government-owned resources company and one of the world's biggest coal concerns, offered 631 million shares, or a 10% stake. The largest IPO in India's history, the $3.5 billion issue was 15 times oversubscribed.

Other Indian state-owned companies will undoubtedly follow. Government copper producer Hindustan Copper Ltd. is expected to sell shares in December, hoping to fetch for the government as much as $900 million. Government-controlled Steel Authority of India Ltd. plans to issue new shares equal to 5% of the company, which would translate into a follow-on offering of more than $800 million.

Within days of going public, rumors surfaced in India that Coal India was eyeing Massey Energy Co., the beleaguered American coal producer whose Upper Big Branch mine exploded in April, killing 29. While nothing came of the reports, the rationale is sound: Many expect Coal India and other newly minted publicly traded companies in India to use its newfound shares and available cash to acquire assets overseas. Some believe that's also part of the government strategy.

"Really, what the government is thinking is, 'We can raise capital and make acquisitions overseas,'?" Hirani says. That's especially true of resources-related companies such as Coal India, whose avaricious demand for raw materials grows alongside the economy. "It's a lot like China, going after resources through acquisitions," Hirani says.

This is echoed elsewhere. "Emerging-markets companies are actively looking outside home markets, and using institutional capital to make acquisitions," says Odell.

In China, the domestic IPO machine shifted into overdrive a year ago. For a 12-month period beginning Oct. 1, 2009, 444 Chinese companies launched IPOs, according to data compiled by ChinaVenture Investment Consulting Ltd. That compares with just 76 in the same period beginning in 2008, a year when global markets shut down.

Equally dramatic are the amounts raised. For the year ended Sept. 30, Chinese IPOs attracted $110.59 billion, according to ChinaVenture. That compares with $21.72 billion a year before, of which almost $19 billion came in 2009's third quarter.

No one knows whether that blistering pace can continue. Beijing's efforts to dampen inflation by ratcheting up bank reserve requirements spooked markets earlier in November, although stocks rebounded. Investors are showing signs of nervousness as well. Ningbo Port Co. Ltd., which operates a major eastern Chinese port, launched its $1.1 billion IPO in September. Relatively few institutions bought in, the company cut the number of shares issued, and the price fell from the gate. Ningbo continues to trade below the issue price.

The Agricultural Bank IPO marked one of the last of China's megastate enterprises to list. That doesn't mean the end of government-owned enterprise IPOs, however. According to Ericksen, privatization is moving from state-owned to provincial-owned, and from the biggest cities into the hinterland.

There's one potential development with huge implications for China's equities market. Global companies are straining to list in China and take advantage of the country's growing domestic wealth. The Shanghai Stock Exchange is working to launch an international board, which would allow global companies to sell shares denominated in renminbi to the Chinese public. Beijing has said it's open to the concept. "The $64,000 question is when," says the Beijing-based lawyer, who asked not to be identified. The lawyer adds that this exercise is part of a larger effort to "upgrade the domestic exchanges," where lack of transparency and lax reporting standards have given the markets the reputation of a casino.

Because of trading restrictions in China, Hong Kong's stock market has served in the past as "a proxy to China," says the lawyer. This accelerated over the past several years after executives in Chinese state-owned enterprises realized they could get better valuations in Hong Kong than in the U.S., their preferred destination earlier in the decade. The Hong Kong stock market grew on the back of Chinese listings. The 20 largest companies on the exchange are Chinese.

About three years ago, in concert with the government, Hong Kong stock exchange authorities decided they needed to diversify and began making concerted efforts to attract listings from companies outside the Chinese orbit as well. That's taken some effort; Hong Kong's listing process "is not easy," a Hong Kong lawyer says, especially if a company is the first for its home country.

But there have been successes. The French skin-care purveyor L'Occitane International SA raised about $700 million in April on the exchange, the first time a French company had listed. Brazil's mining giant Vale SA announced in September it would list in Hong Kong, perhaps by the end of this year. Italian fashion designer Prada SpA says it is considering a Hong Kong listing next year.

The oddest presence in Hong Kong may be Russia. In January, Russian aluminum producer United Co. Rusal, controlled by Oleg Deripaska, listed on Hong Kong and raised $2.2 billion. Deripaska announced this month he would attempt to raise $1.5 billion in December through an IPO in another company he controls, electric utility OAO EuroSibEnergo.

Russian aircraft leasing company Ilyushin Finance Co., which expects to launch a $250 million IPO next year, wants to list in both Russia and Hong Kong, according to a Russian media report quoting one of Ilyushin Finance's investors.

In an interview with Bloomberg Television in mid-November, Stephen Jennings, CEO of Russian investment bank Renaissance Capital, predicted that Hong Kong will replace London as the exchange of choice within the next three or four years. That said, the Russian Internet assets holding company Mail.ru Group Ltd. raised more than $900 million in London in early November, one of the biggest listings of the year. That issue was 20 times oversubscribed, according to a source close. Among other assets, Mail.ru holds a 2.4% stake in Facebook Inc.

The London-based lawyer with Russian business experience says he would be surprised if such a dramatic shift occurs. "There's a good pipeline of Russian business looking to go public," he says. "Most are looking at London, with a few in Hong Kong."

In Russia itself, the government is trying to help its stock exchanges attract new capital. Regulations enacted last year allow Russian companies incorporated offshore -- for most private Russian companies, the preferred domiciles are tax shelters such as the British Virgin Islands, Cyprus and Luxembourg -- to list domestically through something called Russian Depositary Receipts, the local version of global depositary receipts. Companies have been slow to act.

Asian institutional investors trail their Western counterparts significantly. But there are expectations that gap will narrow as Asian investment funds grow and restrictions on equities investments loosen, further fueling IPOs.

There are some interesting signs. Global Logistic Properties Ltd., for example, raised 3.45 billion Singapore dollars ($2.64 billion) when it went public in October. It was Singapore's biggest initial public offering since 1993. Controlled by the Singapore sovereign wealth fund Government of Singapore Investment Corp. Pte. Ltd., known as GIC, Global Logistic owns warehouses and industrial parks in China and Japan. According to Chinese press reports, both China's national pension fund and its sovereign wealth fund invested in the IPO. GIC continues to hold 43.2%.

The attraction of emerging-markets companies' listing on New York exchanges has faded over time. Valuations tend to be higher at home than offshore. There's less need to attract American Depositary Receipts because capital flows so freely globally. Sarbanes-Oxley added another layer of reporting requirements that many companies consider irritating and time-consuming. "Any company that decides to go to the U.S. has to be confident about its accounting," says Gupta. "The perception is it's easier to list in India than in the U.S.," although, Gupta adds, "there are safeguards in India."

Emerging-markets companies that do list in New York find a welcoming environment. The attraction is simple: They've got growth.

The clunky-sounding Chinese chain of fast-food restaurants Country Style Cooking Restaurant Chain Co. Ltd., for example, grew from nine restaurants to more than 100 in 2-1/2 years. More importantly, China's fast-food restaurant market is expected to double from 2009 levels, to $113 billion, by 2014, according to the company, quoting a Euromonitor International study. Country Style Cooking debuted on the NYSE in late September, rose 47% on the first day and more than doubled within a month before settling down. Shares in the chain, based in the southwestern Chinese city of Chongqing, now trade at about 70% over the initial offer.

In October, ChinaCache International Holdings Ltd., which provides Internet content services, almost doubled in price the first day after an $84 million IPO.

Just how far can Chinese companies push and still attract Western investors? Echoes of a kind of dot-com frenzy are rife and worrisome. Online video concern Youku.com, for example, said it plans to raise up to $150 million in a Securities and Exchange Commission filing in mid-November. Goldman Sachs (Asia) LLC is lead underwriting for China's version of YouTube LLC, which lost $21.2 million for the nine months ended Sept. 30 on revenue of $35.1 million.

Bitauto Holdings Ltd., which offers automotive-related advertising services in China, raised $127 million in a mid-November IPO. It has lost a cumulative $123 million. Bitauto's shares have languished at around the offer price of $12 each.

It does almost appear as if New York is on the receiving end of some Chinese IPOs that couldn't quite make it at home.

Meanwhile, Western institutions in these fast-growth markets gain confidence in local institutions and the economies themselves. "They don't even think of Brazil as an emerging market," says Cleary Gottlieb's Odell. "You're starting to see foundations much more like developed countries."

While the NYSE continues to outpace other equity markets in size, the gap is narrowing. In October, the NYSE market capitalization totaled $12.826 trillion. The combined Shanghai and Hong Kong exchanges, by contrast, totaled $5.482 trillion. Five years back, those combined exchanges amounted to $1.5 trillion. The NYSE's total market cap was $21.7 trillion.

For emerging-markets new issues, the momentum seems likely to continue. Warburton cuts an interview short: "Sorry, I've got to get to the next meeting on the next IPO." That's the way it is on the sweet spot.