If you want emerging-market exposure that goes beyond owning one broad-based ETF or open-end fund, you need to be aware that not all emerging markets are the same.

Some rely on exporting consumer goods to the U.S., some on exporting commodities to China and similar countries. Some are obvious growth stories, like India and China, and some are smaller countries that have a lot going for them, but have growing pains.

Understanding those differences will be crucial the next time there is a nasty correction in this market segment.

For example, if all you owned in 1997 were southeast Asian countries, you got hit hard relative to the widespread emerging-market pain that went with the Asian contagion.

If you owned only current-account-deficit countries during the risk-aversion correction last spring, again, you felt more pain than those with a more diversified approach.

If all you own right now is Brazil and Russia, what do you think will happen if commodities endure a serious correction?

The chart below compares the Turkish market with iShares Singapore ( EWS). I have written about both Turkey and Singapore .

Turkey has numerous deficits; Singapore is one of the surplus countries. Turkey has inflation issues and high-teens short-term rates; Singapore's rates are lower than ours, with scant inflation.

If you like Turkey, it is because of the country's potential membership in the EU and its young and large population.

If you like Singapore, it is because it is less volatile than most emerging markets, has a well-managed economy and is growing exports.

The second chart compares the Singapore dollar with the Turkish lira. The point of this chart is to show how well the surplus currency did against the deficit country during last spring's stress test.

That is a very big move. If there is ever a repeat of 1997, might the chart simply flip over?

These two countries appear to zig and zag against each other, which probably makes for good diversification. Turkey was the poster child for the risk-aversion correction last spring. That market went down hard and has stayed down. Singapore did go down, but it was only down for a month because the dynamics behind the correction had nothing to do with low-yielding currencies with surpluses.

It is assured that there will be some sort of emerging-market crisis in your investing lifetime, and chances are it will be like all the panics in the past. It will start in one country and take its neighbors or other similar countries down with it, causing some genuine pain.

That segment will feel it far worse than other emerging markets. If you have diversified emerging-market exposure, you don't need to guess correctly about where that panic will come from, which makes managing your portfolio much easier to do.

Source: Google

At the time of publication, Nusbaum held no positions in the stocks mentioned, although positions may change at any time.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback; click here to send him an email.

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