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How to Play Emerging Markets?

NEW YORK ( TheStreet) -- From Indonesia and Thailand to Chile, emerging markets have had a strong run so far in 2010. With the U.S. and U.K. bracing for another period of slower growth, emerging markets could well continue to outperform.

In the global recession, these economies have proven resilient compared with developed economies, growing at rates significantly higher than the U.S. and U.K. China's GDP is projected to grow slightly less than 10% in 2010, while India is likely to record a growth rate of over 8%.

While emerging markets are subject to higher volatility because they lack depth and liquidity, they may actually be less risky over the long term given their better economic conditions, according to James Dailey, portfolio manager of Team Asset Strategy Fund (TEAMX).

"It is a question of time horizon. When the next crisis emerges, do we think emerging markets will be decoupled from developed markets? Probably not," said Dailey. "But emerging markets are in the middle of a stair step, whereas the developed markets are just oscillating. We are going up and down and going nowhere, kind of like a roller coaster ride. The emerging markets are like an escalator. There are some steps and some ups and downs but overall the trend is up."


Chad Deakins, portfolio manager of the $235 million RidgeWorth International Equity Fund (STITX), thinks emerging markets will also benefit from the weak currency outlook in developed economies.

"We think the currency return to U.S.-based investors is going to be a big part of the total return from emerging markets for those investors," said Deakins. "The developed world will print money which will lower the value of those currencies relative to some of the emerging markets which have lower debt to GDP ratios, and don't need stimulus to have stronger GDP growth and better earnings growth."

Meanwhile the U.S. is also stepping up pressure on China to let its currency appreciate, as developed economies' exports are hurting from the "artificially low" value of the Yuan. Asian countries are also likely to encourage a rise in their currencies, as they battle raging inflation in food prices, according to Dailey.

( To listen to Dailey's views on why China will let its currency appreciate click on the audio button below.)

Here is a look at what countries and themes within emerging markets are expected to do well in the near future.
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