Emerging markets and commodity-related industries are the two areas seen as providing the best opportunities for growth over the next 12 months by institutional investors around the world.

But at the same time, there are growing concerns that both areas could develop bubbles, and institutional investors question them as sources of long-term stable growth, according to a global survey by the Economist Intelligence Unit.

The BNY Mellon-sponsored report, titled: The search for growth: Opportunities and risks for instititutional investors, contains the results of a survey among 800 institutional investors and executives around the world.

"According to respondents, emerging markets offer the best prospects for economic and asset-price growth. But there are also concerns that these markets could be overheating," the researchers said. "Investment in companies in the developed world with strong exports to emerging markets may offer investors another attractive way to take advantage of these growth opportunities."

The researchers said that the most rapidly growing countries do not always deliver the highest investments returns. Often investors pay too high a price because the growth has already been priced into asset values.

One metric that they said to look out for was the price-to-book ratio. "When an emerging-market price-to-book ratio gets above two, you tend to get pretty poor returns in the next two to three years," Prudential Corporation Asia fund business chief investment officer Kelvin Blacklock said in the report.

"At the moment, the Asian average equity is trading at about 2.2 times to book and Indonesia is trading at four times to book, suggesting that a lot of the good news in terms of expected future growth from Asia is already in the price," he said.

But The Boston Company senior portfolio manager Kirk Henry told Investor Weekly that the current valuations were largely in line with historic averages. "When evaluating asset-based valuation metrics such as the price-to-book ratio, today the asset class trades at approximately 2.0 times trailing price to book," Henry said.

"This is in line with the historic 10-year average for the index, and represents about a 10 per cent discount to the average level of the past five years. So while emerging markets companies have come a long way from late 2008 lows, we do not see the investment landscape as very expensive relative to ongoing growth opportunities," he said.

However, from a bottom-up perspective there are certainly overvalued stocks in these markets, Henry said. "Although the market in aggregate is trading at average levels, on a stock-by-stock basis, we do see certain segments of our investable universe trading above trend relative to future growth prospects, and would thus be avoiding such companies," he said. 

Respondents to the survey also indicated concern over the rising food prices and their potential to spark social unrest, and Henry agreed this is an issue that deserves monitoring.

"Events in North Africa and the Middle East over the past six months are recent evidence of the fact that rising food inflation paired with what can viewed as complacent, autocratic leadership can be a volatile mix of conditions," he said.

"While it is difficult to immunise an emerging markets portfolio completely from these issues, a forward looking manager can assess a variety of risks inherent within the asset class to determine if a company's valuation and stock price adequately captures the potential downside risks if a country market were to face a period of such instability," he said.

Commodities-related industries are seen as providing some of the best growth rates around, with the Economist Intelligence Unit predicting an increase of 28 per cent of hard and soft commodity prices around the world.

But at the same time, respondents classified commodities as the most risky asset class in the near future.

"Respondents think that the industries that offer the best growth rates are those that involve commodities: oil and gas; agriculture and agribusiness; and mining and metals," the researchers said.  "Commodities are also regarded as offering very positive prospects for asset-price growth, but, again, there are concerns about overheating; commodities are viewed as being the asset class where bubbles are most likely to form and are seen as the most risky asset class over the next 12 months," they said.

But Mellon Capital Management managing director and global investment strategist Jonathan Xiong said predictions of a bubble in commodities were somewhat overstated. "We don't think it is a bubble; the prices are very realistic," he said.

He did not rule out that the demand for metals for Chinese infrastructure projects could decrease as the rate at which the country developed large scale projects during the global financial crisis was unlikely to be sustainable, this would not cause a collapse of commodity prices.

"Bubbles are fed by exuberant speculation, not by supply-side-driven events," he said. "Although I think there will be more volatility in commodity prices going forward, there is no bubble," he said.