Emerging markets have been the main beneficiaries of the fallout from the US credit crisis, and there are indications this shift in sentiment isnÆt temporary and the long-term picture remains positive.

Christian Deseglise, New York-based global head of emerging markets business for HSBC Investments, believes the recent strength of emerging markets is a direct consequence of fundamental improvements.

ôThe relative resilience of emerging markets illustrates the confidence that many investors have placed in the asset class as they have recognised the considerable reservoirs of growth many of these countries exhibit,ö he says.

Global economic growth has been driven to a large extent by emerging markets, where domestic demand is taking a more central role in economic expansion. Deseglise cites a forecast from the International Monetary Fund that emerging markets will grow by 8% in 2007 and by 7.6% in 2008.

ôWith rising GDP (gross domestic product) per capita, rapid urbanisation and an expanding labour force, domestic consumption is becoming an increasingly important engine of growth for emerging countries,ö he says. ôGrowth is therefore becoming more sustainable.ö

Overall macroeconomic conditions within emerging markets are also very supportive.

Although headline inflation has been on the rise in several countries, core inflation remains under control in most emerging economies, including China. Turkey recently saw its inflation rate fall to a 37-year low, with expectations for it to fall even further by year-end. Inflation in Brazil remains very low and it is also currently abating in India.

Emerging markets are also seeing improving levels of debt-to-GDP and continued improvements in credit ratings. Brazil recently saw its long-term sovereign credit rating raised one notch and has already attained investment-grade status in its local currency sovereign credit rating.

Emerging markets are also continuing to implement sound fiscal policies.

ôAs a consequence of this improved economic stability and of favourable growth and liquidity conditions, emerging markets have continued to outperform developed markets year to date,ö Deseglise says.

With earnings growth continuing to surprise on the upside, he says emerging markets remain attractively priced relative to developed markets, trading at an approximate 10% discount on a 12 month forward price/earnings basis.