What goes up, must come down – at least a bit. And so it is with initial public offerings.

After a bumper 2010 in which issuers in Brazil, China (including Hong Kong), India, South Korea and Russia raised a combined $153.7bn – or more than twice the $74.4bn raised in 2009 – the dash for new share issues from emerging markets appears to be losing steam.

Even as the overall volume of global IPO climbed 14 per cent during the first half of the year to hit $114bn, the amount raised from these emerging markets was largely flat at $51.3bn, compared to $50.6bn the year before, according to data from Thomson Reuters.

Within this, India and South Korea were the biggest losers. Indian companies, having raised $2.1bn through 27 issues during the first half of last year, only managed to raise $760m through 19 issues during the first six months of this year.

The drop was even more pronounced in South Korea, which saw the amounts raised from new issues fall from $7bn in H1 of last year to $2.4bn this year.

Contrast this with the US,  where new issues rose from $8.4bn during the first half of last year to $23.9bn during the first six months of this year and the obvious question is what happened?

From Edemir Pinto, Brazil’s stock exchange chief, who boldly declared that Brazilian IPOs will raise more than 55bn reals ($35bn) for the whole of 2011, to VTB Capital, which forecasted that Russian listings would hit $15bn-$20bn, the view at the start of the year was that 2011 was going to be another bumper year for emerging market IPOs.

“If things keep the same pace, we’ll have the greatest volume of IPOs in our history”, Pinto told the Brazilian magazine Exame, in January.

Yet six months on, with the exception of Hong Kong – which in spite of a slew of cancelled IPOs, saw new issues jumps from $826m in H1 2010 to $8.7bn in H1 2011 – the surge that many were predicting has failed to materialise.

Brazilian companies have so far raised $4.3bn via 10 issues, while Russian companies have bought in $2.1bn. (This compares with the $4.1bn and $2.7bn raised in H1 last year.)

In some ways, the slowdown in the growth of new EM issues should not come as a surprise.

Inflation is sending interest rates up and share prices down in many of these countries. The MSCI index is up 1.9 per cent in the year to date compared with the 7.6 per cent rise in the SP 500.

This in turn is prompting companies to cancel or scale back sales.

“IPO markets do well when risk-taking is on the rise and economies are going through a period of strong growth,” said Masha Gordon, head of emerging market equities at PIMCO. “At the moment, we have skittish markets and uncertainty about the outcome of mid-cycle rebalancing in emerging economies. Naturally, investors are more selective”

Concurrently, valuations for new issues have gotten too punchy for some investors’ liking while the relatively lacklustre performance of some recently listed companies have dented interest in new floats.

“Why go for new issues, particularly if the companies are neither remarkable nor cheap, when the MSCI EM index has a forward P/E of 10 times and we see plenty of value in listed stocks?,” said Gordon.

Not everyone shares this view however. Maria Pinelli, Ernst Young’s Global Vice Chair of strategic growth markets remains bullish on the IPO market in emerging countries this year.

“There’s a lot of pent up capital out there waiting to be deployed,” she said. “Private equities and institutional investors – they all have quite a lot of room in their portfolio and are looking for companies to sponsor.”

But will they put it in equities and more specifically, new issues though? While emerging markets have lost none of their “safe haven” status, investors seemed to be looking to get exposure in other ways. Data released by EPFR, the Boston-based fund tracker in recent weeks showed that investors are fleeing the equity market in favour of bonds. And as beyondbrics noted elsewhere, EM bond markets are on a tear at the moment, with amounts raised by dollar-denominated and local currency bonds in Asia during the first six months of the year both hitting new highs.

That said, investors are fickle creatures. With another six months to go, EM IPO bulls may be proved right yet.

Related reading:
Hong Kong IPOs: the Sun also rises, beyondbrics
Surge in IPOs masks investor despondency, FT
Appetite for Indian IPOs wanes, FT
IPO file, beyondbrics.