Lately, it seems like every time an investment makes money, you can find someone claiming there's a bubble about to burst. Yet although some stocks have recently enjoyed nearly unparalleled historical gains, you shouldn't rush to the conclusion that there must bea bubble inflating -- or even if there is, that it's going to pop anytime soon, sending shares plummeting back down to earthagain.

Are emerging markets bubblicious?
The latest investments to gain the attention of bubble fanatics are emerging-market stocks. An article in The Wall Street Journalover the weekend noted how an ETF that focuses on Brazilian stocks has nearly tripled in size to almost $11 billion in just the past year. That surge stems from a combination of a Brazilian stock market that has doubled so far in 2009, and performance-chasing investors who've dumped $2 billion of new money into the fund. The ETFs two biggest holdings, Petrobras (NYSE: PBR) and Vale (NYSE: VALE), have gained 88% and 54% respectively since this time last year.

Nor is Brazil an isolated example. Again, according to the WSJ, investors have added $26 billion into emerging-market funds in 2009, with more than half of that going into ETFs. Given how well some of these markets have done, it's no surprise that they've attracted the full attention of those who follow the herd. Among Chinese stocks, China Life Insurance is up 76% in the past year, and Baidu (Nasdaq: BIDU) has risen 88%. In India, both Infosys (Nasdaq: INFY) and HDFC Bank (NYSE: HDB) are up more than 80%. And Russian funds have seen similar gains, with the Templeton Russia & Eastern European Fund up over 60% year to date.

Are ETFs to blame?
Some cite ETFsas at least part of the cause of the huge rise among emerging markets. Since most ETFs own a fixed roster of individual stocks, high demand for ETF shares leads to corresponding demand for those particular stocks, leading some to conclude that "mindless" purchases are creating bubbles.

But there are a couple of reasons why you shouldn't rush to the conclusion that red-hot emerging markets are ripe for short sellers to take advantage:

Invest smarter
So how can you know whether emerging markets are overheated, or just at the beginning of a huge run? Instead of relying on your gut instinct, you can apply some of the same principles you'd use in picking any stock to investing in ETFs. Fundamentally, price alone can't tell you whether an investment is a good value; for an ETF, you also need to look at the earnings powerof its primary holdings to see if their growth potential justifies their prices.

Similarly, attempting to determine the intrinsic valueof major holdings can give you a better sense of whether an ETF gives you the desired margin of safetythat will make you feel comfortable with investing your money in it. Other factors, including whether constituent companies pay dividends, have inordinate political risk, or face the loss of their competitive advantage, can also help you make a better decision.

It's way too early to conclude that Brazil and other emerging markets are in an inflating bubble. And more importantly, even when bubbles dohappen, ETFs don't cause them; investors do. You'll always do better making your own decisions, rather than following the herd over the cliff. But if you find emerging markets compellingfrom a fundamental perspective, then don't assume that high investor interest in ETFs will inevitably sabotage your investment.

This article was originally published as This Market Double Is No Bubbleon Fool.com

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