* Emerging markets offer higher GDP growth, consumer strength
* Asia and Latam are hot, Eastern Europe and Africa less so
* Consumer goods, infrastructure, debt and equity seen attractive
TORONTO, Feb 26 (Reuters) - With only tepid growth expected in North America and Western Europe in 2013, Canadian asset managers say the best opportunity for growth comes from emerging markets, where a burgeoning middle class is hungry for consumer goods and improved infrastructure.
Once viewed as higher risk, emerging economies from China to India and Brazil to Mexico are in the spotlight as investors face the prospect of mediocre returns from both stocks and bonds in the developed world in 2013.
While a slowdown in China in 2012 may have left some fearing a trend, growth across much of Asia and Latin America promises to be several percentage points higher than the 2-to-3 percent growth expected in developed economies, without the risk of Europe's debt crisis or the U.S. budget showdown.
"In the emerging markets you have a consumer that is not going anywhere, and not about to fall asleep. We think this is a story for 2013, 2014, 2015, even beyond this decade. We truly believe the emerging markets are going to get us, the developed world, out of our funk," said Serge Pepin, head of investment strategy at BMO Global Asset Management.
While austerity is the flavor of the decade in Europe and the prospect of higher taxes or spending cuts may cut into America's nascent economic recovery, the growing wealth and appetite of consumers in China, India, South Korea, Indonesia, Chile, Brazil and Mexico promise growth in sectors as broad as consumer goods, technology, gaming, infrastructure and banking.
"The consumer is a big theme for us, consumerism if you will," said Pepin. "You have this hungry consumer who wants the same products that you and I have, and their wealth is increasing and their potential for wealth is increasing. It's an emerging middle class that is hungry."
While all of Canada's big banks and asset managers offer mutual funds designed to leverage growth in emerging markets, Mississauga, Ontario's Excel Funds Management Inc has specialized in the market since its chief executive, Bhim Asdhir, founded the company 15 years ago.
His motivation, and advice to investors, is simple. The developing world offers three "major shifts" that boost returns versus the developed world.
"The developed world is aging, and emerging markets have young populations. That means a productive population. The second is debt-to-GDP in the developed world is about 100 percent, while in emerging markets it is about 35 percent. And most of the emerging markets ... are growing about 3 percent faster than the developed world," Asdhir said.
Canadian fund managers offer increasing choices with exposure to both the equity of emerging markets, which can include major global names such as South Korea's LG Electronics Inc or Samsung Electronics Co Ltd, as well as the debt, in the form of both corporate and sovereign credit.
But Asdhir said there is also less-obvious way to leverage the consumer appetite of the emerging market: by investing in global companies deriving a big portion of revenue from emerging markets. Colgate-Palmolive Co, Unilever PLC and Yum! Brands Inc all leap to mind, Asdhir said.
He also dismisses the suggestion that the emerging markets offer more risk than developed markets, given the entrenched problems facing developed nations in Europe and North America, where massive debt overhangs will weigh on growth for years to come.
That said, BMO's Pepin cautions that not all emerging markets are created equal, and he separates them into four blocks: Asia and Latin America, where growth prospects and corporate governance has made great strides, and Eastern Europe and Africa or the Middle East, where "challenges" remain.
BMO is staying away from a few areas in particular, Pepin said, including Eastern Europe, which is hindered by the European debt problem, as well as Argentina, which has political issues that has pushed it beyond developing status to "frontier."
He also likes Southern Africa for its resource opportunities, more than North Africa, where political strife has clouded investment opportunities.
Still, he said every investor should have a solid chunk of their portfolio in emerging markets, from about five to 15 percent, depending on the investor and investment horizon.
"When you look at risk versus return, emerging markets are high-return, low-risk propositions. If you ask anybody where emerging markets are going to be five years from now, people will tell you that they are going to be stronger and bigger because the underlying demand," said Pepin.
"But if we wait for five years, we will miss the boat."