Irwin Greenstein says emerging markets could be about to bounce back.

That’s because a powerful alliance within the World Trade Organization of China and India is seeking a compromise to contain domestic food inflation by raising farm tariffs and subsidizing local producers.

Irwin says growth in developing countries is still much stronger than the US. And if they can rein in inflation, their economic outlook will improve rapidly. That’s why the latest WTO development offers investors an opportunity to cash in when emerging markets rally. More from Irwin…

A new development at the World Trade Organization reveals that emerging markets have won a major food fight – giving investors a shot at cashing in.

The US is crying about how India and China undermined crucial tariff talks about agriculture. The US said that a sudden reversal by the two Asian giants threatened to shut out the US from those booming emerging markets.

We have a different take on it – one that could serve as an indicator of an emerging-market bounce-back.

The so-called Doha roundtable (which has been going on for seven years and has become the full-employment act for bureaucrats and functionaries) was established to settle trade disputes between emerging and industrialized nations. There’s been lots of finger pointing that we won’t get into here. However, here is the take-away for emerging-market investors…

India, China and other emerging economies are obstructing their food markets from imports by the US. At the same time, they are cutting exports and continuing the subsidies that ultimately provide cheaper food to the indigenous marketplace. These moves are aimed at keeping affordable food within their borders as a means of controlling inflation.

This is an important issue for investors. Food, along with fuel, have been the major inflationary fronts that emerging markets have viciously fought for the past year. Between March 2006 and March 2008 the international food price index nearly doubled — surging 82%.

It’s one of the reasons emerging markets have suffered. Last Friday, our emerging-market index took a beating, dropping 59%.

But we still believe that the longer term trends favor emerging markets far better than the U.S.

The fundamentals of emerging markets actually look much stronger than the U.S. For example, the growth in East Asia’s emerging economies will slow to 7.6% in 2008 and 2009, down from an average growth of 9% in 2007, according to the Asian Development Bank.

By comparison, the University of Michigan said the U.S. economy will expand in 2007 and 2008, but at a pace well below the 3.2% increase in real GDP growth of this year and last year. So as you can see, even in sluggish times, Asia outperforms the U.S. by some 137% over a two-year period.

Now, if emerging economies can rein in inflation through domestic agricultural policies, it’s quite possible that we can see a turn-around in their economies.

As the Journal reports, Cuba, Haiti, Indonesia, Philippines and Venezuela are among over 30 WTO countries allied with India and China in WTO agriculture negotiations. The group also includes more established countries such as South Korea. All of these countries often work in a coalition of developing nations in Africa, the Caribbean and Latin America.

We don’t expect the latest WTO pact to turn back the clock on food prices in emerging economies. High food prices are here to stay for the foreseeable future. Higher biofuel production, energy prices, and increased food consumption will become structural rather than cyclical issues for emerging markets.

Thanks to the Bush administration, ethanol production will devour 30% of the U.S. corn crop by 2010. Over 40% of the increase in global maize consumption from 2000 to 2007 was also attributed to U.S. biofuel production. Finally, the tree huggers and the White House have found common ground for their self-righteous stupidity.

But we emerging market investors can rise above the self-serving polemic. Check out our Emerging Market Index every Friday. Take the pulse and see when the patient has turned the corner. At that point, you may see emerging markets as the best investment opportunity on the planet.

Source: How Emerging Market Investors Could Win This Food Fight