By Dimitra DeFotis

no credit needed Arial view of the Himalayas near India.

For investors willing to take on moderate to high risk, emerging markets are at a turning point that may mark the beginning of a sustained upturn, says Jeffrey Kleintop. Schwabs chief global investment strategist.

In a just-released white paper thats bullish on emerging market investing, Kleintop says slower global growth is reflected in attractive, low valuation a key reason for emerging market upside. He thinks emerging markets stocks can benefit from global economic improvement, be a buffer against weaker global growth, and offer diversification.

Emerging markets economies would gain from global trade growth, which appears poised for improvement despite the risks presented by the slowdown in Europe and geopolitical spillovers. The attractive valuations for EM stocks have started to be recognized by the markets. Even some of the most economically miserable EM countries have seen solid stock market performance in 2014.

Indeed, the iShares MSCI South Africa ETF  (EZA ) is up 4% over the past year, and the Global X FTSE  Argentina  20 ETF  (ARGT ) is down 3% over 12 months, while the iShares MSCI Emerging Markets ETF  (EEM ) is down more than 1% in the same span and the iShares MSCI Brazil Capped ETF  (EWZ ) is down 16% in that period. Indias stocks have been the stellar performers this year, with the election of Prime Minister Narendra Modi, who has been quick to institute reforms. The iShares MSCI  India  Small Cap ETF (SMIN) i s up 69% over the past 12 months, and the Wisdom Tree India Earnings Fund (EPI ) is up 36%.

A key to Kleintops positive argument now is low valuation. He writes:

A key support is that low valuations on EM stocks means that they are trading at a significant discount to U.S. stocks and those of other global developed markets. EM stocks rarely have been more inexpensive on a relative basis and are well below their average historical prices on an absolute basis. Investors already have priced in a more pessimistic outlook for EM stocks, making them better positioned to sustain strong performance than stocks of developed international markets such as Europe.

Recognizing historical disappointments and the risk in emerging markets, he offers a little history:

EM investors in the 1990s were used to significant up-and-down swings. Financial crises were regular occurrences in EM countries in Asia and Latin America. These included the Mexican “peso crisis” in 1994, the Asian “contagion” of 1997-98, and the Argentine debt default of 2001. From 2002 to 2007, the “BRIC” era (named for a 2001 paper on the economies of Brazil, Russia, India, and China) saw EM stocks experience a period of spectacular performance resulting from a few key drivers: emerging market economic growth was rapid and EM stock valuations rose while developed market price-to-earnings (PE) ratios fell

After that golden era, we all know the score: emerging markets slowed; many became dependent upon developed economy weakness, and the Federal Reserves quantitative easing encouraged money to flow into emerging markets and create unsustainable trade and budget deficits. Currency devaluations resulted in losses on foreign-currency-denominated investments.