Don't Lose Your Shirt in Emerging Markets

Shah also questions whether emerging stock markets are really the play on those countries' domestic growth that investors think they are. By his estimation, they are simply another investment that rises and falls on the actions and habits of the U.S. consumer.

For example, he compared changes in valuation multiples in the main emerging equity markets over the last four years with changes in U.S. retail sales over the same period. And guess what? They track each other almost identically. In other words, for all the talk of the new Chinese and Indian consumer, what's happening in their stock markets still depends on what's happening at your local Wal-Mart.

"Many commentators believe that the equity markets of the larger emerging economies such as Brazil, India, Russia, and China offer fantastic long-term prospects," he writes. "But the reality is that these emerging equity markets are just a play on the U.S. consumer cycle."

There's probably no need to panic, but it's still a good idea to view emerging markets more cautiously than many people have to date. The boom there may yet continue, but the balance of risk and reward right now doesn't look as compelling as it has in recent years.