Is the China trade over? A two-decade long run has catapulted the Chinese economy to amazing heights, but real cracks are starting to appear: inflation has perked up, the housing sector looks overextended and rumors persist that some major banks will need a bailout.

The path ahead is no easier. Chinese planners are pulling off the delicate act of slowly letting their currency strengthen in a bid to shift from an export-led economy to one led by consumer spending. China will continue to emerge even stronger in the decades to come, but the near-term may just be getting too bumpy for many investors. This is a market I only want to own after a major sell-off.

#-ad_banner-#But a wide range of other emerging economies should be getting your attention right now. They’ve posted impressive growth that has fueled a spike in consumer spending, have sound government policies, and if they play their cards right, then they have a real shot of eventually becoming economic powerhouses.

Not the usual suspects
While most investors have largely focused on BRIC countries (Brazil, Russia, India, China), some investors feel this theme has been played out and are instead moving into the CIVETS (Colombia, Indonesia, Vietnam, Turkey and South Africa). I profiled the group last summer, noting that Turkey held the greatest appeal (I also still favored Brazil among the BRICs). I still think the CIVETS hold tremendous appeal.

In China’s backyard, Indonesia and Vietnam are making major progress, but are likely to hit speed bumps from nepotism and communism, respectively, as their economies open up. Indeed, Indonesia went on to become one of the hottest stock markets in the world, as I noted here, though it has dropped more than 20% since then in tandem with the global market selloff.

In fact, many emerging markets have taken it on the chin this summer, simply because they have historically been seen to be especially risky in times of global economic crisis. Notably, the International Monetary Fund (IMF) anticipates many of these same countries will post robust economic growth in 2012.

Don’t let the numbers fool you
Let’s run through the numbers. First, how have these markets fared since the U.S. markets began plunging in late July?

Well, the S&P 500 is actually holding up better than most global indexes. But don’t let that fool you. Look at this table as a price sheet, telling you how discounted these markets have become in the past few months. Combine that with a long-term view, and things start to look very compelling…

A few markets have plunged more than 25% since July, for country-specific reasons. Russia’s sharp plunge is attributable to a pullback in oil prices and a setback for business-friendly President Dmitri Medvedev, who has apparently lost a power struggle to modernize the country against once and future President Vladimir Putin. Chile is feeling the pain of plunging copper prices, which are the No. 1 source of foreign earnings. And investors are fleeing South Korean stocks on fears that China, its biggest trading partner, will need fewer imports.

The selloff in many of these other markets doesn’t jive with IMF growth forecasts. Real gross domestic product (GDP) is expected to grow by a fairly robust 6.4% in emerging and developing economies in 2012, but by only 1.6% in advanced economies 2012. This should equate to global economic growth of about 4%. Economic weakness in Europe and the United States won’t leave emerging markets unscathed — Chile’s pain from falling copper prices is just one example. Yet increasingly, these emerging economies are turning to each other to fill the void created by slumps in Europe and the United States. Southeast Asia, though still somewhat dependent on China, is seeing double-digit trading gains among smaller neighbors. Brazil, though somewhat dependent on the United States, is seeing robust demand from places like Colombia and Mexico.

With that in mind, here are two groups of emerging economies that hold great long-term appeal for investors. The first group is home to large economies that are poised to keep growing, but are now so large that their days of explosive growth are over. These are the lower-risk, lower-reward markets. Group two comprises the economies on the cusp of even stronger growth, albeit with plenty of ups and downs along the way. They carry ample risk, but could deliver major rewards.

Group 1: Turkey, Brazil, India
These countries have seen all kinds of ups and downs through the decades, but they now appear to be on a very stable path. I’ve extolled Brazil and Turkey’s virtues in earlier articles. What about India? Well, the IMF anticipates 8% GDP growth in both 2011 and 2012. Real hurdles remain — especially in terms of infrastructure, but the emerging class of young professionals appears far more committed to transparence and world-class business practices than the generation they are succeeding. With such a huge population and the potential for a rising middle class, you simply can’t ignore India, especially as its stock market has just been tagged with a “20% off” sale.

Group 2: Indonesia, Colombia, Vietnam, Thailand
These four countries are collectively home to nearly 400 million people. And in each instance, they’ve made great strides by reducing the impact of corruption (Indonesia), terrorism (Colombia), statism (Vietnam — though more work remains) and infrastructure (Thailand). Executives at Ford (NYSE: F) were recently in Asia, noting their excitement about the large Chinese market, but also noting that sales of Ford’s cars and trucks are really taking off in places like Thailand and Indonesia.

Risks to Consider: A deep recession in the United States and Europe would surely hurt because it would depress demand for exports. Commodity-focused countries in particular such as Chile, Russia and Brazil hold the greatest risk, while a big slowdown in China would surely hurt its key trading partners such as South Korea and Taiwan. On the other hand, sustained or even accelerating growth could also prove troublesome for countries like Vietnam that still lack the infrastructure and government policies to handle any bottlenecks.

Action to Take –> Trying to handicap these countries on some sort of fundamental basis is a very tough task. Simply looking for the global stock markets with the lowest price-to-earnings (P/E) ratios won’t help because too many factors go into determining performance. Near-term earnings forecasts are irrelevant anyway, because these are long-term opportunities. Indeed, you should be focusing on the countries that appear best-poised to generate sustained long-term growth on the backs of expanding middle classes. I think the countries I mention here make the cut.

Forget China. These are the next emerging powerhouses set to deliver big gains to investors.