Sometimes it pays to draw an opposite conclusion from what seems to be overwhelming evidence. A recently released report, The New Global Challengers, published by the Boston Consulting Group, highlights how emerging-market companies are becoming major players in both developing and developed markets. The big markets of China, India and Brazil get the lions’ share of attention. The real target for investors should be elsewhere.

Here are a few examples. Bharat Forge (India) is now the world’s second-largest forging company. Embraer (Brazil) has surpassed Bombardier as the market leader in regional jets and Pearl River Piano (China) is the global volume leader in piano production.

The BCG study identified 100 of the largest companies with combined 2004 revenue of $715 billion that are based in ten emerging markets and are rapidly gaining global market share.

Asia is the home of 70 of these companies. China accounted for 44 of them, followed by India with 21 and Brazil with 12. Interestingly, only four of the Chinese companies on the list are privately owned while all the Indian companies on the list are publicly traded and have foreign strategic investors as stockholders. Only one of the Indian companies is state-controlled.

While China seems to dominate this list with more than double the numbers of runner up India, I believe that the state-ownership and control of most of the Chinese companies will be a severe handicap over the long haul. Some pundits argue that investors are better off investing in state-controlled Chinese companies because the government will not allow them to fail. But this is offset by the likelihood that government ownership and control will limit their potential. Foreign governments may consider them an extension of the Chinese government and block their expansion into sensitive areas. State ownership will also lead to inefficiencies and an inability to hold onto top management talent.

This ownership and control issue plus India’s advantages of having a democratic government, a more youthful population and a well-developed stock market founded in 1870 is why you should favor India over China in your global portfolios. The problem is that the leading SENSEX index companies still seem a bit pricey. Investors need to reach down into the mid and small cap area for better value. You need exposure to the domestic economy and to names that aren’t in the paper everyday and they also need to spread their risk.

While 77 of the 100 companies on the list were from China, India and Brazil, my instincts also led me to look at the bottom of the list where Indonesia has only one company and Thailand and Malaysia have only two companies. Why not look beyond the headlines and hoopla and take a look at these countries?

Thailand, in large part due to its political problems, is one of the cheapest markets in the world with a market trading at just over seven times earnings not to mention that it is up so far this year 10.5% - twice that of the S&P 500. Indonesia is Asia’s best performing stock market so far this year up 27%. Chartwell’s portfolios use two closed-end funds for these markets, the Thai Fund (TF) and the Indonesian Fund (IF). It is a good idea to blend these in with high quality markets like Singapore (EWS), Australia (EWA), and Hong Kong (EWH).

Some analysts are questioning the potential rewards of investing in emerging markets because of their perceived higher risk. Meanwhile, as key central banks raise lending rates, bond yields are rising, and that makes riskier assets, such as emerging-markets stocks, look less attractive.

Go against the grain and build positions in higher quality emerging market countries and companies. Southeast Asia is being lost in the hype about India and China and presents global investors with a great opportunity.

Carl T. Delfeld President & Publisher Chartwell Partners http://www.chartwelladvisor.com.

Carl has over twenty years of experience in the global investment business with a strong background in Asia.

• Author of global investor primer "The New Global Investor"

• President of the global investment advisory firm Chartwell Partners

• Publisher of the Chartwell Advisor ETF Report and Asia-Pacific Growth

• Columnist on global investing with Forbes Asia: "Global Gambits"

• Former U.S. Representative to the Executive Board of Asian Development Bank

• Chairman of the global economic strategy think tank ChartwellAmerica

• Asian specialist with the U.S. Joint Economic Committee and the U.S. Treasury

• Former member of the U.S. Asia Pacific Economic Cooperation Committee

• Former investment executive with Robert Baird & Company and UBS

• Graduate of the Fletcher School of Law & Diplomacy with economics scholarship from U.S.-Japan Friendship Commission

• Exchange student at Sophia University, Japanese Ministry of Education Fellow at Keio University