Emerging markets are again at the forefront of investment portfolios in 2012 as the dangers of inflation and stagnation had all been washed off by the tight monetary policies this year, a senior investment manager said.

The shift in sentiment to the emerging markets has come from the diffusion of "overheating" among Asian economies particularly China, according to www.morningstar.com's interview with Schroders' head of GEM equities emerging market valuations Allan Conway. He noted inflation worries have subsided with the monetary interventions done by Asian economies.

He pointed out that the weak U.S. growth and the continuing debt debacle in Europe will still be a prolonged risk for investors to consider for the long term. He also clarified the misconception that emerging markets are high-risk ones as presumed this year.

"Let's remember that emerging stock markets have absolutely decoupled in the same way as the emerging economies have. Over the last 10 years or so, emerging is up some 480%. Most of the developed markets over that period are up 30% or 40%.

"So you've had huge decoupling. Going forward, we expect that to continue. Emerging markets today are the low-risk investment. Whether you're looking at any of the macroeconomic indicators, whether you are looking at levels of government debt, emerging are low and declining; developed are high and increasing. Fiscal situation in emerging is much better, current account much better, levels of reserves--let's remember the sight after the last EU Summit of Europeans dashing off to China to see if they can get bailout money. Reserves are very high in emerging," Mr. Conway said.

Asia's Proving Its Mettle

Asian economies are proving they could withstand Europe's debt crisis and are raising expectations of credit rating upgrades, a report from Bloomberg said.

Five-year credit-default swaps for China, South Korea, Indonesia, Malaysia, the Philippines and Thailand climbed an average 65 basis points to 163 this year, while contracts for 17 eurozone countries, excluding Greece, jumped 122 to 305.

Asia's 10 biggest economies excluding Japan grew an average of 5.2 percent in the third quarter, triple the euro-zone's 1.4 percent rate, and their central banks hold $5.2 trillion in currency reserves, more than half the global total of $10.2 trillion.