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The slowdown in developed market growth is making emerging markets increasingly attractive to institutional investors, says a new report from the Economist Intelligence Unit.

The research suggests that many investors are prepared to stay the course in emerging markets despite excessive turbulence. Institutional investors say that even if growth in emerging markets slows, it seems likely to exceed that of the developed markets for some time to come. They seem prepared to ride out the inevitable volatility and setbacks in exchange for participating in emerging markets' superior growth.

Many investors feel that the developed markets have become more risky while the emerging markets have grown less so.

Political dysfunction, once seen as largely a legacy of dictatorship and colonial rule, is now a clear threat in the US and the euro zone as those governments struggle with enormous debt problems, wobbling domestic economies and increasingly angry electorates.

The study finds short-term concerns exist about liquidity and asset price bubbles. Many institutional investors worry that demand from foreign investors will simply exceed the supply of emerging-market investments available.

If more developed market investors expand their emerging market exposures, their actions may trigger price bubbles or volatile boom and bust cycles, notes the report.

Investors are also concerned that emerging markets would suffer if demand from developed world customers dries up.

Emerging nations are also major investors in developed world debt and equities and would be hurt by a developed market downturn. But some institutional investors believe a slowdown in growth would help reduce the risks that emerging markets will overheat.

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