At the same time, frontier market exchange-traded funds across the globe have followed a similar growth trajectory:The Market Vectors Vietnam ETF (NYSEArca:VNM - News) is up 20 percent; iShares MSCI All Peru Capped Index Fund (NYSEArca:EPU) has jumped 40 percent; and the Market Vectors Africa ETF (NYSEArca:AFK - News) has soared 45 percent. Eastern Europe is the only region that has lagged.

In the first part of this two-part series on emerging and frontier market investing, IndexUniverse.com interviews Mark Mobius about his views on the global economic recovery, asks where he is putting his money, and what the risks are. In the second part, we will examine some of the ETFs that investors can use to take advantage of Mobius’ investing strategies.

IndexUniverse.com:The Dow has passed 10,000 points and the global economy looks on the way to forming a strong recovery. What are the drivers here behind such a quick about-turn in asset prices, and is it sustainable?

Mark Mobius (Mobius):The performance of markets has lots has to do with the continuing weakness of the dollar. What is happening is that there is a retreat out of dollars into other currencies and into stocks and commodities. That combination is what’s driving the current rebound. I’ve mentioned a number of times lately, however, that there is always a chance of more corrections along the way, and we may still be in a secular bull market.

IndexUniverse.com:What sectors are you most excited by right now?

Mobius:Energy and consumer products, mainly. We like companies that are gaining market share—consumer banks that are able to capture the growing consumer credit market [in emerging market countries] look promising here.

IndexUniverse.com:What will be the most exciting areas of the world to invest in next year?

Mobius:If things continue on the track they are running on now, then the frontier markets are going to be the place to be, because as the valuations of these larger markets move up, there will be a search for more value in small-cap emerging markets stocks and the frontier countries—that whole area is becoming quite interesting. In terms of major markets, Eastern Europe and Russia will do well next year, because they have lagged. There is lots of value in Russia right now.

If you look at our portfolio, you will see China right at the top, followed by India, but it’s Russia that will continue to come up next year. In Russia, the sectors that are most interesting are energy, raw materials and there is an insidious consumer market. The consumer story in Russia is particularly interesting. Romania is another one of those frontier areas that I like a lot.

IndexUniverse.com:With the Latvian currency crisis, isn’t there a lot of risk in these markets though?

Mobius:It’s precisely because of the perceived risk of places such as Latvia and Lithuania that stocks are down so much in the region. That presents an opportunity to invest at a great price, because those countries are not going under as the Latin American ones have done in the past. Currency experts have recently pointed out that Latvia and Estonia could both adopt the euro if they wished to, since they have enough currency reserves to convert [to euros]. So, if the worst comes to the worst, then they could adopt the euro. In that sense, I’m not worried at all about the macro side—it’s true that the economy has seen an incredible shrinkage recently, but next year there’s going to be a pretty strong recovery.

IndexUniverse.com:While the S&P 500 Index is up 20 percent this year, Hong Kong’s Hang Seng has zoomed more than 55 percent in value. Is there some kind of decoupling process under way again in the aftermath of the subprime crisis?

Mobius:I have never believed in the decoupling story, but that doesn’t mean markets will move in the same direction at the same time. The impact of subprime defaults is mostly psychological in many cases. A factory owner says, “I won’t build because of the subprime crisis,” but frankly, most emerging market countries have shrugged off the property crisis now and are continuing to grow and to build. There is some decoupling in the sense that developed and emerging markets move in different directions at different times, but you cannot isolate emerging markets. The only possible exception to this rule is the frontier countries.

Emerging markets are leading the way:There is decoupling in the sense of past and present policy with the new administration in the U.S. That is taking place at a gradual place, but there is real questioning going on about international relations policies—spending and so on. That is going to be very important, and it is mostly brought about by foreign countries pressing the U.S. China and Russia are sitting on so many U.S. assets that they are pressing the country to change its previous stance, so that their dollar assets don’t go out the window. That’s a phenomenon investors have to watch very carefully.

IndexUniverse.com:How about Japan? Some claim that Japan is undervalued in light of the global economic rebound this year, while others still won’t touch it at all. What do you think?

Mobius:With such big strength in the Japanese yen right now, we cannot expect a very bullish export market. It is true that on a historical basis Japan appears to be relatively cheap, but you can’t expect the same kind of growth in Japan as in emerging markets. But firms there have been emphasizing their focus on China and India recently:The Japanese have woken up to the fact that they have got to be more proactive and aggressive in those markets where they are usually very conservative. Going forward they have a lot to gain from being more proactive, and those markets will serve to take up the slack in the country.

IndexUniverse.com:Are commodity prices likely to continue rallying?

Mobius:We think so. You’re continuing to see a bullish market. In our portfolio, we have a heavy emphasis on energy, plus other commodities such as nickel, palladium and iron ore. It’s important to recognize that derivative markets will place lots of volatility on the sector, however. That has got to be expected by investors:Commodities are not a straight-line situation.

IndexUniverse.com:Will commodities outperform equities in 2010 then?

Mobius:I don’t think so, because with commodities, you will have a lot of volatility. With stocks, you have real growth stories. There is of course a tremendous range in the equity space, but some stocks are in a very strong position to gain market share—that’s where you are going to get the brunt of this recovery. There will be better earnings as well.

IndexUniverse.com:What are the dangers right now in your opinion?

Mobius:There are two dangers that we face:the money supply elephant and the derivatives elephant. If both elephants continue to be in a happy mood, we are fine; that is, if money supply keeps growing and servicing the growth of the economy and if derivatives don’t get into trouble. Derivatives apply a multiplier effect to growth or retraction in the economy, so investors have to keep their eyes open to see if that situation becomes unstable.