For much of the past decade, EM equities have languished. Investors were drawn elsewhere, chiefly to the US, where technology stocks offered both growth and relative security, reducing the incentive to take on the political, macroeconomic and liquidity risks associated with markets like Turkey, Egypt and South Africa.
Elsewhere, outflows from Central and Eastern Europe, the Middle East, and Africa (CEEMEA) left once-vibrant markets struggling. Russia has disappeared from the investable universe. Egypt has also been relegated to a near-tracking error in indices. And Turkey has been overshadowed by volatility and policy uncertainty, all diluted by constant index rebalancing heavily skewed toward Asia.
At the same time, smaller markets shrank in market cap and liquidity, eroding their appeal to global allocators. The result: a ‘lost decade’ of disinvestment that hollowed out not just local equities but the broader ecosystem of EM sales and trading.
However, today, momentum is turning. Macro shifts, undemanding valuations, and improved investor sentiment have begun to reverse the tide. Endowments, pension funds and other asset owners, who for years dismissed EM as too risky for the returns offered, are reassessing.
In addition, Saudi Arabia and the UAE have risen as consequential weights in global benchmarks, while Poland and Greece are enjoying strong performance, albeit still well below their historical highs. Corporate fundamentals in markets such as Turkey and South Africa remain compelling despite challenging macro headwinds.
With the dollar weakening and diversification top of mind in a changed geopolitical landscape, EM is again in focus. The question is not whether inflows will come, but how they will be executed.
The new challenge of execution
Renewed inflows create challenges distinct from the past. Unlike previous EM cycles, today’s market infrastructure is defined by the dominance of electronic trading, the decline of risk capital provision, and heightened concerns about information leakage. In many markets, high-touch models no longer suffice. Traditional lit venues, often thinly traded and subject to outsized price impact, cannot easily absorb multi-million-dollar orders without significant slippage.
Fragmentation across venues, the rise of localised structures, and the complexity of settlement all add friction. For global buy-side traders, this raises pressing concerns: how to achieve best execution in markets where liquidity is uneven, volatility persistent, and traditional methods inadequate. The execution challenge has become a central obstacle to re-engaging with EM.
Dark liquidity as the new frontier
Against this backdrop, dark liquidity is emerging as the natural frontier for EM execution. By enabling counterparties to match block orders, have them print on exchange, and allow for market participants of all kinds to access the dark pool would be a notable advancement for the asset class. Dark pools minimise market impact, reduce implementation shortfall, increase efficient price discovery, and preserve information integrity. For markets characterised by episodic liquidity and heightened volatility, these qualities are particularly valuable.
Global buy-side behaviour reinforces the point. In developed markets, institutions have already embraced dark liquidity for block execution, viewing it as a critical complement to algorithmic and lit strategies. Applying this model to EM offers the potential to unlock participation from both domestic and international investors.
Poland provides a clear example: It has long characterised as a two-tier market where domestic and international order flow hardly interact directly with each other. Now, as Poland is attracting heightened interest from foreign investors of all types, it is critical that dark block trading finds its rightful place int the Warsaw Stock Exchange ecosystem. To be sure, without an effective dark liquidity mechanism, those inflows have produced distortions – Polish equities surged over 30% this year, but liquidity constraints meant investors absorbed higher market impact than necessary. A functioning dark pool could have delivered more balanced price discovery.
Turkey offers another illustration – with turnover averaging up to $4 billion a day, activity is high, yet much of it is driven by day trading and high-frequency strategies. This churn does little to provide the long-term capital Turkish corporates seek from portfolio investment. Dark block trading offers a pathway for foreign investors to enter without exacerbating volatility or compromising execution quality. Similar dynamics are evident in Saudi Arabia where, despite significant reforms, block trading still faces structural hurdles that only a dark liquidity framework can address.
In short, as inflows accelerate, dark liquidity is increasingly essential to make EM investable at scale.
Addressing this shift
Looking at Liquidnet’s role in all this, the heritage in block trading and dark liquidity is allowing for a position at the centre of this new paradigm. Its global buy-side network connects natural counterparties across regions, creating a trusted environment for sensitive trades. The firm’s agency model ensures alignment with client interests, avoiding conflicts of proprietary risk-taking.
Crucially, Liquidnet is tailoring its approach to EM rather than applying a developed markets model wholesale. Market-by-market adaptations, whether in Saudi Arabia, Turkey, or Poland, are designed to accommodate local structures while preserving the benefits of dark execution.
The ambition is clear: to enable $5 million, $15 million, even $30 million blocks to trade seamlessly in markets where such activity has historically been impractical but, equally, to do so on-exchange and without impacting lit activity on the local central limit order books. By integrating domestic and international liquidity, Liquidnet aims to create scale and depth that makes EM allocations sustainable over the long term.
In conclusion, dark pool block matching is a transformational, and consequential opportunity for EM in the next five years. With valuations attractive, sentiment improving, and inflows accelerating, EM equities are poised for resurgence. The decisive factor will be execution – and in that, dark liquidity looks set to play a defining role.