Nobody is sounding the bells yet for the emerging markets, but a curious thing has happened on the road to "BRIC will make you rich!" So far this year, many of the most attractive emerging markets are not actually doing well at all. Ups and downs are par for the course with all investing, and especially so in emerging market investing, but it is interesting to step back and see how many of the most attractive long-term stories are working out today.

Brazil - Rates Shimmying Upward
Just in time for Carnival, Brazil's central bank decided to hike rates by another 50 basis points, moving the benchmark rate to 11.75%. Just as it is often said that investors should not "fight the Fed," investors in Brazilian equities have had to swallow hard as Brazil's government tries to find the right path between inflation and growth.

Even though commodity prices, a major component of Brazil's economy, have been strong both under ground (copper, iron, and gold) and above ground (soybeans and other agricultural products), that has not helped the market so much. The iShares Brazil Index ETF (NYSE:EWZ) has lost almost 4% year-to-date as of this writing, and many riskier ETFs have had it worse. The Market Vectors Brazil Small-Cap ETF (NYSE:BRF) has dropped 8.6%, while the thinly-traded Global X Brazil Consumer (Nasdaq:BRAQ) and Global X Brazil Financial (Nasdaq:BRAF) have fallen 12% and 9% respectively. For those who think investing in Brazil is not quite risky enough, the ProShares Ultra Brazil (NYSE:UBR) are down 8.6%. Oddly enough, while rates keep climbing, the EGShares Brazil Infrastructure Fund (Nasdaq:BRXX) has only seen declines of about 1%.

China and India Look for the Soft Landing
Like Brazil, government officials in China and India are trying to strike a balance between rising inflation and the need to continue delivering a higher standard of living to their people. Global food issues and well-publicized social unrest in North Africa are not helping matters either.

One of the largest China-centric ETFs, the iShares FTSE China 25 (NYSE:FXI) has dropped about 1%, and that certainly is not too bad. More focused funds like the Guggenheim China Small Cap (NYSE:HAO) and iShares China Small Cap (Nasdaq:ECNS) have had a rougher go, down more than 5% each. Interestingly, the very small and thinly-traded Market Vectors China ETF (NYSE:PEK), which uses swaps to try to replicate the performance of China A shares, is up almost 1% for the year.

India, though, has taken year-to-date developments harder. Most of the major India-focused ETFs are down by double-digit amounts, including WisdomTree India Earnings (NYSE:EPI) (down 13%) and PowerShares India (NYSE:PIN) (down 12%). For those investing in India's small caps, the results have been downright frightening - Market Vectors India Small Cap (Nasdaq:SCIF) is down more than 20%, while the EGShares India Small Cap fund is down about 19%.

Smaller Markets Hurting Too
Indonesia, perhaps one of the most under-followed of the major emerging markets is doing relatively okay (the Market Vectors Indonesia Index ETF (NYSE:IDX) is down about 6%), as investors apparently are more encouraged by growth than they are worried about insurrection and energy prices.

For Vietnam and Turkey, though, times are tough. Vietnam's problems are largely self-inflicted in the form of deficits, debt, inflation and other economic policy foibles. That is hardly comforting for Market Vectors Vietnam (NYSE:VNM) shareholders looking at a 10% loss so far this year. In Turkey, the central bank seems to be succeeding with its unconventional monetary policy (dropping rates to prevent yield-chasing but raising reserve requirements to curb lending), but investors are worried about a host of fiscal and political issues. Keep in mind that Turkey is large and growing, but relatively poor; secular, but with a strong Islamic core, and not necessarily openly embraced by Europe. Investors in the iShares Turkey Market Index (NYSE:TUR) likely know all of this, as the fund has dropped by 16% this year.

Where to from Here?
Though there is a real worry that high energy prices will tip the global economy back into recession (particularly at the $130-$150/barrel price), the long-term fortunes of these countries still look bright (at least provided that Vietnam gets real with its fiscal policy). Accordingly, now may be a good time for risk-tolerant investors to think about building a diverse portfolio of emerging market stocks - either individual companies or broad ETFs. While risks will always swirl around these economies and stock markets, the reality is that investors are often rewarded with returns that make this turbulence seem worthwhile in hindsight. (For more, see Investment Ideas From Emerging Markets.)

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Tickers in this Article: BRF, EWZ, FXI, EPI, IDX, TUR, VNM

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