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What's Wrong With the Biggest Emerging Markets?

While the BRICs have languished, smaller Southeast Asian countries have remained on rapid growth trajectories.

In 2012, the Philippines GDP grew 6.6%, up from 3.9% the year before. The country has benefited from a reform-minded president who has brought new transparency to government. The improving political climate has encouraged expatriates to return home for jobs in expanding factories and call centers.

In Thailand, floods shut down factories in 2011 and caused GDP growth to slip to 0.1%. But last year, the figure surged to 6.4% as auto manufacturers expanded and domestic demand increased. Helped by the improving outlook, iShares MSCI Thailand (THD) gained 14.5% this year. "Thailand has repaired the damage, and now the economy is in sound shape," says Morningstar analyst Patricia Oey.

Oey says that Thailand and the Philippines should continue growing smartly because of increasing consumer sales and investments in infrastructure. The IMF estimates that both countries should grow around 6% this year. For the short term, the growth should continue drawing investors to stocks in Thailand and the Philippines, says Oey.

That should boost the country ETFs. But she cautions that investors should prepare for a bumpy ride because valuations are no longer cheap. The MSCI Thailand index now has a price-to-earnings ratio of 14.8. Since 2007, the index has posted an average figure of 12.5. The Philippines benchmark has a P/E of 26.1, up from an average figure of 17.3.

At the time of publication, Luxenberg had no positions in securities mentioned..

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.
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