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By David Berman

UBS (NYSE:UBS) analyst Constantin Vayenas remains upbeat about emerging markets in general -- but if you want to be a bit choosy about the countries you invest in, try avoiding India in favour of Taiwan.

Yes, India has managed to outperform slightly this year, rising 12.4 per cent to the end of November, in U.S. dollar terms. That beats the overall return for emerging markets by about 1.2 percentage points. But Mr. Vayenas isn't so sure that outperformance will continue. He downgraded his recommendation to "neutral" from "most favored."

The market is very well-owned by foreign institutions and with global growth improving, there is less of a case for domestically-driven markets like India," he said in a note. "Furthermore, earnings momentum is starting to slow as well, with corporate results generally disappointing in the third quarter of 2010. In our view the less attractive valuations and conditions are not in a reasonable relation to the limited upward potential in the months ahead.

Instead, he has become a big fan of Taiwan, owing to the market's low valuation (at 12.7-times estimated earnings, which is below the average) and heavy exposure to the lagging technology sector, which should pick up with the global economy.

The second half of 2011 is also likely to see the benefits from the economic trade agreement with China start to filter into the economy," Mr. Constantin said. "We expect the index to outperform in the coming months.

Disclosure: None

Source: UBS Favors Taiwan Over India