NEW YORK ( TheStreet) -- Emerging markets generally grow faster than developed ones, so it's natural to want to invest in these markets to take advantage of this. But apart from political risk and mad dictators, there is also the constant risk that a country could run out of money in a global credit crunch and sharply reverse growth and destroy value. Investors in emerging markets should thus look at one statistic above all others: the country's balance of payments.
In looking at how much money, or credit, a country receives through public or private transactions versus how much it has doled out, otherwise known as a debit, investors can determine whether an emerging markets country is facing a balance of payments deficit -- a key danger factor.The financial crisis of 2008-2009 showed emerging market debt flows are highly dependent on global liquidity conditions. With the volume of bond issues falling by half in 2008, compared to 2007, investors saw trading volume fall by a third. In a credit crisis, countries with a balance of payments deficit won't be able to finance debt and the value of businesses in the region will collapse. A credit crunch will also affect trade flows, so countries that are heavily dependent on oil, or other commodities, will see balance of payments deteriorate rapidly. As a result, balance of payments is the most important economic factor in choosing investments in emerging markets.
The International Monetary Fund (IMF) organization noted in its October 2014 "World Economic Outlook" a list of 17 countries expected to run account surpluses in 2014 and 2015. Of these countries, four have a combination of investable stock markets and reasonably stable business-friendly regimes, making them attractive places to invest.
Here's a fail-safe emerging markets portfolio that avoids the risk of a credit crisis: