Markets tend to be maniacal.

The newfound enthusiasm about the outlook for the U.S. economy provides the latest example. In the wake of the financial crisis, some high-profile investors had declared that the U.S. faced years of malaise ahead and that only the emerging world offered near-term prospects for growth.

Capital rushed overseas as money managers marveled at the characteristics -- such as low starting points for income and strong demographic profiles -- that seem to position major emerging markets like Brazil, India and China for heady growth ahead.

But that interest has waned considerably this year as the U.S.'s prospects have improved dramatically.

Overlooking Emerging Potential

"The substantial fund flows into emerging-markets equities over the past couple of years -- nearly $100 billion in 2010 alone -- have now swung in the opposite direction," analysts at Batterymarch Financial Management wrote in a research note this month. "In the last two months, many investors have been taking profits and reallocating assets to developed markets, whose prospects are improving while inflation creates headwinds in the emerging economies."

Many investors may now be overlooking the same emerging-markets growth prospects that they were once so enamored with. And that might open up more opportunities for other investors looking for diversification and growth than were available when those emerging markets were far more popular not long ago.

Take India. When prospects for the developed world looked bleaker, investors focused on the country's strong GDP expansion rate for a democratic country with a large, well-educated, English-speaking population.

But fears about inflation and a wave of prominent scandals about wireless-spectrum auctions have since taken center stage.

At the start of February, the MSCI India Index had dropped 20% from its high on Nov. 10, Batterymarch Financial Management notes. The fall is even more striking considering that, in the same period, the Standard & Poor's 500 stock index has rallied about 10% in the U.S.

The present, though, may provide a better opportunity for investors to take profits from the U.S. and rotate into India. Valuations are more attractive than they have been, and the country still has plenty of potential for strong underlying growth, even if investors seem to be ignoring it at the moment.

"As 2011 unfolds, India has some difficult weeks ahead as it tries to deal with the challenge of inflation, as well as a modest balance of payments," Jim O'Neill, the head of Goldman Sachs Asset Management, wrote in a note to clients in January. "But, given the power of their underlying story, even if the current moment might not be the absolute best time to be investing, smart policy behavior will allow this remarkable underlying story to unfold."

The Growth Story's Still Booming

How remarkable? O'Neill provided some anecdotes about the growth taking place. IndiGo, a previously little-known Indian airline, recently put in an order for 180 commercial aircraft -- A320 passenger jets, to be exact -- from Airbus. That's the single biggest airline order in history, but IndiGo indicated it's just beginning: The company said it may need 4,000 aircraft over the next 15 years.

An impressive new airport was constructed in not much more than a year, O'Neill wrote, and the Indian Aviation Minister claims that 400 such airports could be built in the future.

This kind of booming growth overseas is leading to a job-creating manufacturing revival here in the U.S. as well. After all, world trade is hardly a zero-sum game. Growth in the U.S. doesn't preclude growth in emerging markets, and vice versa.

But investors looking to tap into the overseas growth may be might better off buying on the emerging-market dips, when the recovery at home is getting all the attention.

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Dereck

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March 09 2011 at 8:36 PM Report abuse rate up rate down Reply
Larke

I've never seen so many people on these message boards that are so excited and happy about a 14 trillion dollar deficit and a 8.9% unemployment rate (mostly down due to discouraged job hunters giving up the hunt).

March 09 2011 at 5:54 PM Report abuse -1 rate up rate down Reply
Larke

Private sector jobs are the key to this turnaround and most jobs will be added by small business. But a two year extension of the tax cuts won't create that many jobs. Your Macroeconomics textbook states that temporary incentives do not produce permanent results. We have learned this over time. Long term tax cuts to help make private business competitive in the global economy will create jobs and increase the individual tax base. Tax cuts will make our businesses competitive again. People aren't going to hire when the business is not there.

A glut of overpaid/duplicate government jobs with excessive benefits only adds to the budget problems. The government doesn't have to be a friend of business, but it does owe the workers a competitive economic environment in which they would be needed for work.

March 09 2011 at 5:50 PM Report abuse -1 rate up rate down Reply
1 reply to Larke's comment
bggdg

Well said!

March 10 2011 at 10:40 AM Report abuse -1 rate up rate down Reply
inasctg56

The gop can deny all they want but the economy is in recovery and will continue to do so unless they interfere - which they are by cutting jobs and wages at the federal and state levels all while cutting corporate and business taxes. Wisconsin, Ohio, Pennsylvania, Florida, and Michigan state republican governors are all doing the same and will have it to pay for in the next election.

March 09 2011 at 1:09 PM Report abuse rate up rate down Reply
1 reply to inasctg56's comment
bggdg

If you could somehow resuscitate your last remaining brain cell, you might be able to put 2 and 2 together to come up with an explanation as to why private sector jobs are beginning to expand just as public sector jobs are shrinking.

March 09 2011 at 4:17 PM Report abuse rate up rate down Reply
inasctg56

reply to franco: Yes the working blue collar middle class. Our manufacturing sector and exports have seen gains for over 19 months. For every 10% increase in exports equals 7% job growth and we now have an administration that is enforcing existing trade laws and negotiating better trade agreements. The new $45 billion in trade with China is just one example. Across the board our trade and exports have seen double digit gains under Obama and the democrats. No more incentives for corporations to go overseas. They can write off 100% in improvements for in the US and it's working. The gop's corporate tax breaks in hope of it trickling does not work.

March 09 2011 at 1:04 PM Report abuse +1 rate up rate down Reply
Franco

What emerging markets? For the working blue collar middle class?

March 09 2011 at 11:54 AM Report abuse +1 rate up rate down Reply
fpfp040408

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1 reply to fpfp040408's comment
fpfp040408

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fpfp040408

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1 reply to fpfp040408's comment
fpfp040408

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March 09 2011 at 11:50 AM Report abuse -1 rate up rate down Reply