A WORLD OF RISK--AND OPPORTUNITY

A WORLD OF RISK--AND OPPORTUNITY

Many investment pros argue that stocks in developing countries have been unfairly punished. While venturing into emerging markets means taking on more risk, the long-term payoffs could be outsized. Buying into mutual funds that specialize in these markets is the easiest way to invest in the sector.

EASTERN EUROPE

The Czech Republic and Turkey offer bargains and the potential for a quick recovery once the global economy gets back on its feet. Battered Russian stocks will likely rebound on demand for commodities from fast-growing China and India.

Strategies: Agne Zitkute of Pictet Asset Management calls this a "once-in-a-decade buying opportunity." She's bullish on Turkey, which boasts a young population and loads of pent-up demand. That should benefit companies such as discount retailer BIM. Bargains abound in Russia, too, where stocks are trading at just two to three times next year's earnings, says Michael Hartnett, emerging-market strategist at Merrill Lynch.

LATIN AMERICA

The region has been buffeted by the collapse in commodity prices, and its currencies have tanked. But Brazil and Mexico both have hefty domestic markets that could bounce back quickly. Argentina and Venezuela, by contrast, still look like trouble.

Strategies: Devan Kaloo of Aberdeen Asset Management likes retailer Lojas Renner and top bank Banco Bradesco, which has a management team that has weathered previous crises. Josephine Jimenez of the Victoria 1522 Fund recommends Colombian gold producer Mineros and Mexican silver miner Penoles as a hedge against inflation.

MIDDLE EAST AND AFRICA 

The Gulf looks iffy

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[From if.  as plunging oil prices hit property values in Dubai and Abu Dhabi. In Africa, turmoil in the Democratic Republic of Congo, Zimbabwe, and elsewhere is a worry. Still, Egypt's 90 million consumers make it a decent bet, and with growth likely to top 8%, Angola and Nigeria look promising.

Strategies: South Africans are using their expertise at home to move into sub-Saharan countries, says Mark Mobius of Templeton Emerging Markets Funds. He's holding South African cellular carrier MTN, which has expanded across the region, and fashion retailer Foschini, which he says has strong cash flow.

INDIA

India is unlikely to see the 8%-plus growth of recent years, and stocks, down 54% in 2008, may not recover until foreign interest picks up. But India is less dependent on global trade than other Asian countries, so companies that serve its domestic market should see steady demand.

Strategies: Guy Strapp of Prudential Asset Management believes in focusing on companies that will benefit from "digging, building, and designing." He recommends Larsen & Toubro, India's largest engineering company, and GMR Infrastructure, which is building three airports and 11 power plants.

CHINA

Look for a recovery in the second half of 2009 once a $582 billion stimulus package kicks in. The Shanghai bourse tanked before the rest of the world--dropping 60% this year--so it could recover before other markets.

Strategies: Jing Ulrich of JPMorgan says that with 45% of China's stimulus package aimed at building airports, high-speed rail lines, and power plants, cement maker Anhui Conch and power generator China Shenhua look inexpensive. Paul Pong of Pegasus Fund Managers says sportswear maker Li Ning will benefit from the afterglow of the Beijing Olympics.

NOTE: Countries highlighted are mentioned in the text.