China's hosting of the Olympic Games in Beijing this year is another sign that emerging nations are taking an increasingly prominent place on the world stage.

On the economic front, the so-called Bric nations - Brazil, Russia, India and China - are forging ahead and funds investing in emerging markets have beaten all their rivals over three and five years. The global emerging markets sector has produced an average return of 235 per cent over five years and 93 per cent over three. Its nearest rival, Asia Pacific excluding Japan, has returned 155 per cent and 65 per cent respectively and many of the best funds in this sector were those focusing on an emerging market, such as Gartmore China and Neptune China.

Brian Dennehy, of Dennehy Weller & Co, the independent financial adviser, says that emerging markets have become a force to be reckoned with in the past couple of years. “For much of the 1990s they shot up and down,” he says, “but the net result was that they went sideways. They have now broken out of that sideways trading range and have put the markets of the developed world in the shade.”

Looking to the future, it is not hard to see why investors are getting so excited about emerging markets. They contain 80 per cent of the world's population and create half of the world's gross domestic product (GDP), yet they represent only 11 per cent of the combined value of the world's stock markets, so the potential for growth is massive.

Mr Dennehy adds: “By 2050 the Bric nations will dominate the globe. The four Bric economies will all be among the world's half-dozen biggest, along with the US and Japan, and China will have overtaken the US to become the most powerful economy on Earth. But while there is greater awareness of the opportunities presented by emerging markets, investors still have pretty limited exposure to the sector.”

Robin Geffen, managing director of Neptune Investment Management, agrees that most people have underestimated the significance of emerging markets. That is not a charge that could be levelled at his company, which has funds investing in each of the four Bric areas.

Mr Geffen says: “Each of the Bric nations is enjoying strong economic growth, with China leading the way at nearly 10 per cent a year. It is also benefiting from huge spending on domestic infrastructure and has a fast-growing middle class.

“India also has a large middle class, which is fuelling a boom in domestic spending. And after years of skimping on infrastructure, India is now spending heavily on this. Russia has prospered on the back of a huge rise in oil and gas prices, which is now feeding through to domestic spending. Wages have increased by 20 per cent, net of inflation, for several years running. Brazil, meanwhile, is reaping the rewards of a boom in agriculture and soft commodities and has a huge trading link with China. Like the other Bric nations it also benefits from a fast-growing middle class.”

However, there are clouds in the sky. One of the brakes on Brazil's growth is the patchy education system, which means that there are significant levels of illiteracy. India is still predominantly a rural economy, so while cities are modernising at a rapid rate, the countryside is in danger of being left behind. The same sort of urban-rural split is a potential source of friction in China, where the income gap between town and country is growing into a chasm.

There are still uncertainties over whether China will develop into a Western-style liberal democracy or remain a confusing blend of state-controlled communism and capitalism, and there are similar doubts over the degree to which Russia will shed its authoritarian style of government.

There is also growing scepticism about whether the Chinese and Indian economies are sufficiently strong to achieve genuine “decoupling” from the US, that is, to be able to avoid being dragged down if the US goes into recession. Ash Kumar, of Morningstar, the fund research group, says: “How can India and China combined fill the void created by a weak US consumer if the latter consumed $9.5 trillion of goods and services last year while the former bought only $1.65 trillion?” He adds that after holding up well last year, the Chinese and Indian stock markets have now begun to reflect these concerns.

Both Mr Geffen and Mr Dennehy recognise these concerns but still maintain that investors should have a chunk of their money in emerging markets. Mr Geffen says: “These are the economic giants of the future. People will look back in 20 years' time and say, ‘Why didn't I have some money in Russia or China?'”

Mr Dennehy adds: “People need to rethink their exposure to emerging markets. Traditionally, advisers have said that you should not have more than 5 per cent of your portfolio in the sector. But emerging markets already make up 11 per cent of the world stock market index. If anything, people should be overweight in emerging markets because that is where the fastest growth is likely to be. In the past, investors used to ask whether they could afford to put money in emerging markets. In the future, the message is that they can't afford not to.”

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