Emerging Concern on Overseas Investments

Millions of dollars are making their way to mutual funds and exchange-traded funds focused on the developing world's new powerhouses -- China, India and Brazil. The returns have been awesome, until very recently. Now they are plummeting. Should you hold these kinds of investments now?

First, it's important to understand that formidable political, economic and demographic factors are contributing to the strength and investment attractiveness of these countries.

Brazil, a country with 186 million people, has a relatively young population. Twenty-six percent of its nationals are under the age of 14. It also boasts a diverse and robust economy. There will be an estimated 260 million Brazilians by the year 2050. Demographically, then, more and more Brazilians will continue to move into peak investing years, turbocharging consumer spending and boosting the demand for local equities. It's a good place to invest.

The annualized return of Brazil's Bovespa stock index was 19.5% on average each year over the last five years. And the Brazilian stock market is trading with a P/E ratio of only 11.8 -- better than the S&P 500's P/E ratio at the close of 2005.

China now has the world's largest population -- 1.3 billion people, with 22% under the age of 14. It produced a cumulative stock return of 65% over the past five years and a 15.4% return in 2005. It is a market that is attracting a huge amount of attention.

India will have the world's largest population in 2050, adding 300 million new people to its current 1.1 billion headcount over the next 20 years alone. Its stocks delivered a 200% cumulative return over the past five years -- 33.3% in 2005 alone. And with many millions of Indian consumers increasingly buying goods and services, Indian equities should have an exceptionally bright future.

These three countries have moved from erratic economic growth and political storms to sustained growth and general stability. India's economy is growing by 7.1% per annum and China's by 9.2% (at least according to official statistics.) All three countries have legal systems that are doing quite a good job bringing discipline to business growth and investment. Not surprisingly, investors worldwide are plowing huge amounts of capital into the stocks of all three countries.

That is, they had been plowing capital into these countries; in recent weeks and months, investors have been heading for the exits. With that in mind, let's take a look at some of the funds focused on these markets.