SHARES in many emerging markets leapt to record highs last week, raising fears that they were becoming dangerously overpriced.

The Turkish market shot to an all-time peak when membership talks with the European Union started after days of wrangling. Membership could bring further improvements in the country’s economy and benefit the market.

The Russian index also hit its highest-ever level, capping a gain of 63% this year compared with 14% for Britain’s FTSE 100. Soaring energy prices have helped the Russian market,dominated by oil and gas stocks, to deliver the best performance of any emerging market so far this year.

India’s Sensex index has been achieving fresh all-time peaks almost weekly for the past three months as foreign money has flooded in to take advantage of its fast growth. The economy expanded by 8.1% in the year to June, well ahead of economists’ predictions of 7.2%.

Investors pushed the South Korean market to its highest-ever level last week, taking its gain this year to nearly 40%.

This is the fifth year in a row in which emerging markets have outpaced their developed counterparts, according to Standard & Poor’s, the data firm. However, some fund managers are becoming nervous.

Jonathan Asante, a global emerging markets analyst at First State, recently sold some of his Turkish shares to lock in profits from the recent rally. He has trimmed his holding in Lukoil, the Russian oil company, and reduced his stake in India.

Asante said: “Investors’ appetites for riskier emerging- market assets is about as high as it can get, but this makes the shares vulnerable to price falls at the first sign of trouble.

“The biggest risk is a global inflation scare, which would force the Federal Reserve, America’s central bank, to raise rates more aggressively.

“When US rates go up, investors tend to lose their appetite for risky assets because they can get decent returns in the developed world.”

The high oil price is another threat. Several Asian countries, including China, India, Indonesia and Malaysia, have been sudsidising domestic fuel prices to shield consumers and businesses. However, with crude above $60 a barrel, the bill has been near-crippling.

Indonesia said last week it would allow domestic fuel prices to rise by 126%. But while the move cheered investors worried about the country’s finances, it is expected to lead to higher inflation and lower growth.

However, analysts do not think we are heading for the kind of bear market that troubled emerging markets between 1994 and 2001.

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