Don't Lose Your Shirt in Emerging Markets

Few investments have been as hot in the past few years as emerging-markets funds.

Consider that since the start of 2004, a $10,000 investment in (DFEVX Quote)DFA Emerging Markets Value (DFEVX) grew to nearly $25,000. The same investment in the (FEMKX Quote)Fidelity Emerging Markets (FEMKX) and (ETGIX Quote)Eaton Vance Greater India (ETGIX) funds would have grown to $22,600 and $24,500, respectively.

But are they getting too hot to handle?

They may be, says Khiem Do, a strategist for Baring Asset Management in Hong Kong and the manager of the exchange-traded Asia Pacific Fund(APB Quote).

"We have been taking some profits in China as some of the names have been getting a little expensive," Do says. He adds that India, another strong emerging market, is also getting more expensive.

After riding the Chinese and Indian stock markets to big gains last year, Do is starting to sell some of his Chinese investments. His fund, of course, requires him to stick to the region. But now he's putting his money to work in places there where he sees better value, such as Korea, Thailand and Malaysia.

Do, who has beaten his Lipper averages over the past three and five years, is now putting his money to work where he sees better value in the region, such as Korea, Thailand and Malaysia. When an experienced manager close to the action starts to get worried about market valuations, it's worth taking notice.