London and New York are not about to lose their positions as the world’s

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leading financial centres, but they are being challenged by emerging-market upstarts in a potentially lucrative area: the management of funds moving between developing economies.

With developed econo­mies struggling and emerging markets thriving, more financial deals are being cut well away from the traditional centres.

Rising trade between emerging economies, cross- border mergers, acquisitions by Indian and Chinese companies and moves by developing-world businesses to raise capital in each other’s markets will drive growth of financial centres in the fastest-growing economies, according to industry experts at a conference on emerging markets in Sao Paulo last week.

For bankers clustering in cities like Sao Paulo and Mumbai, the movement of funds among emerging ma­rkets represents an alluring chance to make money.

“We see flows between Africa and India, India and China, India and Korea being much bigger,” said Neeraj Swaroop, chief executive of Standard Chartered’s India business. “Not just big companies, but also small and medium-size companies are making outbound investments. For banks like Standard Chartered, these are immense opportunities to pursue.”

Stephen Jennings, chief executive of Renaissance Capital, an investment bank based in Moscow that is focused on developing economies, said he was already seeing a rapid integration of capital flows in emerging markets.

“In our M&A practice, 80 per cent of our deals don’t have a Western face,” he said, referring to mergers and acquisitions. “And the same thing will happen with financial flows.”

“London cannot possibly retain its role as a primary capital markets centre for emerging markets,” he said. “I think it will be displaced totally over the next two to three years.”

He added that high taxes, intensifying regulation and unfavourable immigration policies all worked against London.

While other industry experts say New York and London will remain dominant for years, examples of changing investment flows abound. Chinese investment is surging in Africa, Latin America and southeast Asia, and Russian and Central Asian resources companies are lining up to list shares in Hong Kong.

Jennings said Rusal’s $2.2 billion initial public offering in Hong Kong in January had been “the tip of a massive iceberg”.

Chinese banks are also making loans across the developing world, like the $1 billion in financing that Sta­ndard Bank of South Africa obtained from Chinese lend­ers in 2009. And Brazilian companies will so­on tap debt markets in South Africa and Russia, said Eduardo Centola, CEO of Standard Bank’s Latin American operations.

“There is interest in issuing bonds for Brazilian companies in rand, and there’s a huge appetite for rand bonds in Africa,” Centola said. “We also find there is an appetite for Brazilian companies to issue in roubles.”

New York and London st­ill enjoy a long list of advantages over emerging-market rivals, including loose capital controls, strong rule of law, sound infrastructure and high-quality universities.

Jim O’Neill, Goldman Sa­chs’ head of global economic research — who also coined the term Bric to describe the developing-world leaders Brazil, Russia, India and Ch­ina — says it will be many ye­ars before traditional financial powerhouses are dethroned. “For any of these emerging markets to truly be an international financial centre, they have to do so­mething about the basic ingredients, including the use of English and adopting very credible and acceptable rul­es of business law,” he said.

Some of the new centres may soon dominate lucrative niches. Singapore is challenging Switzerland for the world’s we­alth management business; Hong Kong is becoming an equity hub for Asia’s growing resources companies; and Sh­anghai is coordinating the financial resources that are driving China’s private sector.

To Jennings of Renaissa­nce Capital, these are the se­eds of a new model, one in which the savings of emerging markets no longer flow to the US and Euro­pe, but rat­her to the areas with the hi­ghest growth rates.

“In the last 10 years, em­erging-markets savings have, through the dollar as the reserve currency, been inter­mediated through the We­st,” he said. “But that capital is much more efficiently deployed in emerging markets because returns are higher and, in some cases, risk is lower. So those connections, the new financial plumbing, are being built now.”