Many Investors have become increasingly leery of the BRIC (Brazil, Russia, India and China) nations because of their slowing growth and tight economic links to Europe. But it’s a big world out there, and Andrew Foster, previously a fund manager and chief investment officer at Matthews International Capital Management, is still discovering numerous opportunities in emerging markets. In order to take advantage of investments in regions beyond the Asian focus of his former firm, Foster recently founded Seafarer Capital Partners and is now the lead portfolio manager of Seafarer Overseas Growth and Income (SFGIX, 855-732-9220).

What’s your view on global growth?

Growth around the world is moderating, especially in many of the emerging Asian economies. However, the nature of that moderation is misunderstood and will be for some time. Emerging economies are transitioning to a more sustainable economic model, but that transition has been murky. As a consequence, investors are fearful of such change, and the eurozone’s economic turmoil has compounded the difficulties that large, emerging economies such as China and India are navigating.

But while the growth outlook is tricky, I don’t have particular concerns for the long term. In fact, valuations are quite accommodative of the medium- and long-term investor’s outlook.

Can you describe these economic transitions in detail?

There are two transitions occurring, one of which is the shift from export-driven economies to consumption-driven economies.

But I think the more important transition underway is the one from capital-intensive economies to service-oriented economies. These services include industries such as media and entertainment, tourism and leisure, as well as a host of professional services such as legal, accountancy and financial planning; these are industries that are really underpenetrated in most emerging economies.

For instance, health insurance has only recently begun to be offered in Singapore. Health maintenance organizations and health insurance just doesn’t exist in the region. That’s a basic consumer service that is largely untapped in one of the richest nations in the world. So I think the shift from external-production economies toward internal-service economies that focus more on intangibles and services, rather than consumables, is an important trend to watch.

Is the slowdown in global growth a natural consequence of that transition?

The shift among emerging economies to a new growth model is part of the story, but the slowdown has also been exacerbated by the eurozone’s debt crisis. Europe is a key export market for most emerging economies, so the Continent’s economic woes are taking a toll.

But I still believe that growth in emerging markets will be relatively robust, even if it’s not at the 10 percent to 11 percent rate that people have grown accustomed to from China, or the 7 percent to 8 percent rate that people look for from India. Growth will moderate, but it will also become more sustainable.

What countries are most attractive right now?

Vietnam is well positioned. Some investors are concerned that its growth model isn’t very healthy, since the state sector is not particularly well managed and creates distortions in the economy. But the private sector is vibrant and growing quite rapidly.

China and some of the other more developed emerging markets in Asia have been shifting their manufacturing bases to lower-cost economies. Vietnam stands to gain much of that business. Meanwhile, on the domestic front, Vietnam continues to make sound regulatory changes, even if those changes haven’t always pleased the market. For example, some investors are worried about heavy-handed regulations on Vietnam’s banking sector, but those concerns are misplaced. The regulators are acting in quite a benign way to promote medium- to long-term growth by forcing some consolidation among the banks and clamping down on certain speculative activities.

South Korea is another market that offers opportunity. Samsung Electronics (Korea: 005930, OTC: SSNLF) and Hyundai Motor (Korea: 005380, OTC: HYMTF) have become strong enough to practically dominate their industries. South Korea also has some very competitive and well-managed companies that are incredibly cash generative, but have yet to see their valuations rise to reflect their underlying fundamentals.

There’s been a bifurcation in the market’s opinion about whether to favor companies that produce impressive top-line growth, but whose cash flows are not nearly as strong, or companies that produce strong cash flows, but have more moderate growth. That’s created a situation where investors interested in South Korea can still find defensive, undervalued names with attractive yields.

Mexico also has a robust economy. It does have linkages to Europe, and there has been concern about the narcotics wars there. Despite those issues, the economy has been surprisingly stable and productive. And there are Mexican companies that offer attractive dividend yields and have healthy, unlevered balance sheets.

How should investors position themselves if Europe’s debt crisis worsens?

Although I think the eurozone will eventually unravel, and the currency will no longer exist in its present form within about five years or less, I don’t believe there will be a messy unwinds culminating with a short, sharp catastrophe.

Even so, investors interested in bolstering their portfolios against this scenario should take a look at the tremendous growth in the fixed-income markets in many emerging economies.

The valuation argument for equities in some of the smaller emerging markets is also fairly pronounced.

Outside the BRICs, there are equities that offer substantial dividend yields, even though they’re only paying out 20 percent to 30 percent of earnings. Low payout ratios provide an ample cushion for a company to sustain its dividend, even if earnings come under stress.

Such companies often have very little balance sheet leverage, so there’s not much debt to create a financial concern. Yet the equities that offer these yields aren’t particularly expensive because their prices have already been beaten down by investors concerned about waning economic growth.

Can you give a few examples of these companies?

In South Korea, Samsung Fire & Marine Insurance Co (Korea: 000815) and S-Oil Corp’s (Korea: 010955) preferred shares offer attractive yields, and their underlying companies boast solid balance sheets. They yield 5.25 percent and 8 percent, respectively, despite the fact that payout ratios for both companies are well below 50 percent.

Kimberly-Clark de Mexico (Mexico: 4FX, OTC: KCDMF) is one of our larger holdings in Mexico. It’s an affiliate of Kimberly-Clark Corp (NYSE: KMB) via both economic and ownership arrangements, but it’s basically independently managed in Mexico. It offers a stable 3.5 percent dividend yield, but it does have a leveraged balance sheet. Although the company carries more debt than the two aforementioned South Korean names, management does place a high premium on paying a consistent dividend.

What’s your best piece of advice for investors over the next year?

Invest in the emerging markets on a diversified basis, and don’t be slavishly oriented toward the BRICs. Valuations are your friend, especially if you focus on income-generating equities. There may be some shocks that still emerge, however, so make sure you’re prepared to endure the ensuing volatility. And if the market does get bumpy, try to stay invested and even invest a bit more during down periods, as those offer the best opportunities to build a strong portfolio.