Pretty much everyone believes in the long-term growth potential of emerging markets. However, when it comes to waiting for that growth, and enduring some pretty nasty turbulence along the way, it's a much harder sell.
Even a renowned global investor and bull like Mark Mobius of the Templeton Emerging Markets Group has his share of jitters right now.
"The main problem we are finding right now, at this minute, is the valuations in India are somewhat high, they're a little bit expensive. And in the case of China, we have quite a lot of exposure there already, so we're not going to be putting a lot more in," he says. As for Brazil, Mobius says his global portfolios have even more invested there than in China. "But in terms of buying more now, again, the valuations have gone up a lot and we have to be much more cautious. Brazil has everything going for it except of course a currency that's little bit too strong."
This is not to suggest that Mobius is anything but bullish on China, India, and Brazil longer term, it is simply a reality that all of those markets have made major moves and thus, are not as cheap as they once were or as cheap as other markets.
"Why we are so enthusiastic about emerging markets is because this economic growth will be reflected in the earnings of companies and then reflected in the price of those stocks," Mobius says.
Two of his favorite non-China plays in Asia right now are Thailand and Indonesia; the former as a play on the demise of political strife and the continued de-concentration of wealth from urban elites to the rural poor. His Indonesian bias can be boiled down to two words: Corruption and commodities, with one falling and the other rising.
While the debt crisis and uncertainty surrounding the Euro Zone is a very real problem in Western Europe, that negative sentiment is creating opportunities in Eastern Europe. Current Mobius favorites in that region include Poland, Russian, Romania, and Turkey.
"They have been on the back burner and have been sort of unpopular with investors," Mobius says, adding that Romania is a new member of the EU that is "going through tremendous reform and change." He says Russia is further along but that the same thing is true there too, pointing out that "the era of the oligarchs is gradually giving way to a wider distribution of incomes."
"You just have to go to cities around Russia and you will see that the consumer society is beginning to grow and incomes are increasing. So there's lots of opportunity, and of course Poland is in the same situation" he says.
And in Latin America, Mobius says Colombia and Chile currently look "quite interesting" and are more compelling than regional heavyweight Brazil. "They've got good companies with good management and their governments are doing a very good job as well."
Still the MSCI Emerging Markets Index (EEM) is down 12% so far this year, versus a 5% decline for the S&P 500. Mobius says "a tremendous amount" of IPOs have had a ''depressing effect" on his markets this year but believe all the new paper has been digested and will prove to be a "temporary phenomenon."
What's more, he senses that investors are less likely to bail out on emerging markets this dip.
"During the subprime crisis everybody rushed out and regretted doing so because within one year...these markets were up 40, 50, 60, 80 percent and people now are thinking twice about doing the same thing."