The considerable recovery in do-mestic demand in many emerging mar-ket economies and improved credit conditions contributed to the rise in equities.

the huge flow of foreign funds into equities. "Against a foreign outflow of US$ 70 billion in 2008, Asian eq­uity markets have seen an inflow of $15 billion year to date," says Pandey. India has witnessed an inflow of US$ 6.8 billion till 27 July in 2009.
The considerable recovery in do­mestic demand in many emerging mar­ket economies and improved credit conditions contributed to the rise in equities. Other comforting factors like moderate consumer spend and debt­to-GDP ratio, insulation of the bank­ing system from the global markets, and much-better-than-anticipated em­ployment picture, too, improved the mood in Asia and other emerging mar­kets. For India, the formation of a stable government at the Centre was also a catalyst. "The election result has positively surprised the market with
the Congress-led UPA sweeping to a near majority on its own as against consensus expectation ofa hung parliament," says Birla SunLife Mutual Fund equity co-head Mahesh Pati!o Expectation of structural re­forms like disinvestment of government com­panies, opening up of the economy to at­tract foreign direct investment, and infra­structure and banking reforms have resulted in the re-rating of the Indian markets. But lack of visibility ofthese expectations in the Union Budget 2009-10 also saw the mar­kets correcting.
Clearly, there is a strong bounceback indicating the worst is behind us. But can this be called reversal of fortunes? "The key risks to the emerging markets are over­bought conditions and potential renewed global risk aversion rather than valuations or domestic fundamentals," says Pati!o The last time stocks in developing countries got this expensive was in October 2007, just before the MSCI Emerging Markets Index began a 12-month tumble that erased half its value. The MSCI earning index trades at 15.4 times compared with 14 of the Stan­dard & Poor's 500 Index. When developing nations last commanded a premium, the benchmark sank 54% next year.
But why should emerging markets not be more expensive than the developed mar­kets? After all growth is expected to come from developing economics. According to IMF estimates, developing economies will grow 1.5% as a group in 2009 and 4.7% in 2010, while developed economies will de-