Although portfolio funds account foronly about 5 percent of the capitalization of emerging stockmarkets, these small infusions of capital, particularlyforeign portfolio investment funds, have been responsiblefor jump starting the development of many of these markets.The main beneficiaries of this growth have been the localfirms and investors who hold about 90 percent of emergingmarket stocks. This Note examines the key role played by theInternational Finance Corporation (IFC) in creating theportfolio funds industry and helping to put countries on themap for emerging market investors. By improving theprice-earnings ratio, liquidity, and pricing efficiency ofdomestic markets, portfolio funds improve firms access toall equity capital in emerging markets, a factor criticalfor business growth in developing countries. The Note alsooutlines the benefits that flow to developing countryentrepreneurs and investors as a result of this increasedliquidity the stock market provides.
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