Talking Emerging Markets With Mark Madden

Emerging markets are finally showing more than just promise. They are delivering profits. But for how much longer?

Emerging market funds have been in nonstop rally mode since 2001, even in the face of commodity-bubble, interest rate and terrorist fears. And while these concerns have grown more acute, Mark Madden, portfolio manager of the $4 billion (ODMAX - Cramer's Take - Stockpickr)Oppenheimer Developing Markets fund, doesn't see them bringing down these shares anytime soon.

Madden's fund is up 10.79% year to date and has returned a staggering 14.46% annually over the past five years. (In case you were wondering, the S&P has lost 2.5% per year over the same period.)

TheStreet.com checked in with Madden to learn why he believes the rally in developing countries will continue -- and for how long.

OK. How much longer can this bull market run?

Emerging markets began outperforming most developed markets in 2001. Nevertheless, 2001 and 2002 were dramatic down years in the global equity markets, so the emerging markets were also down modestly in those years. Even so, the outperformance relative to the developed markets began in 2001 and has continued since then. We expect overall outperformance to continue for several more years.

Today, EM stocks are still less expensive than developed market stocks and they also offer greater growth prospects in the coming years. Based on that, we believe that there are two to three more years left in this EM bull market.

Which developing markets show the greatest promise?

In our view, some of the more attractive markets are Brazil, Turkey and India. The first two countries still have rather high interest rates, both nominal and real, and significant potential for interest rate cuts over the next several years. As interest rates decline, we think that GDP growth will be strong as domestic consumption growth accelerates and, equally important for equity prices, is the asset price appreciation that will come from lower rates.