Investing in emerging markets has paid off handsomely over the last few years. According to a new Standard & Poor’s survey of fund managers, professional money managers are still optimistic about the outlook for emerging markets, despite some volatility in certain stocks and bond returns. The latest S&P Emerging Markets Sentiment Survey, which tracks the views of more than 150 fund managers with over $500 billion in emerging markets, found that 48% are more positive about the outlook for emerging market stocks in the second half of 2007 than at present, while only 5% said they were more bearish.

0807NUMEROLOGY.gif

Among the biggest risks facing emerging markets in the second half of 2007, the managers cited the outlook for the U.S. economy (48%), rising global interest rates (42%), and global inflationary pressures (38%). Additionally, nearly half of the respondents cited country-specific risks as the primary driver for their emerging markets investment decisions. When it comes to the most attractive opportunities for emerging markets investing, the survey suggests that investors are particularly interested in Latin American (56%) and Asian (53%) markets.

“Fund managers are demonstrating some fatigue with Asian markets and appear to be rotating into other regions, especially Latin America, where relative value may be more appealing,” said Standard & Poor’s chief economist David Wyss in a statement. “It is nonetheless striking how positive they remain about emerging markets in general, despite the bull run we have seen in both emerging market debt and equities.”

The survey also found that emerging market debt, despite record low spreads relative to U.S. treasury bonds, is still viewed as attractive by most fund managers. More than half (53%) said their allocation to emerging markets debt would increase by the end of the year, while only 4% said they expected it to decline.