Emerging markets, usually the kind of bet that goes very bad when markets get cranky, should prove a safe haven if problems in subprime and corporate lending prompt a more severe flight from risk.Large reserves of cash and the ability to fund in their own currencies mean emerging markets are now resilient in the face of market turmoil even if they are not immune.

There are also some big scary supporters in the form of sovereign investor funds that could step in and buy if there was a threat of a generalised rout. The cash reserves would also provide a formidable arsenal for foreign exchange intervention.

Subprime mortgage-related debt and corporate credit have both performed very poorly in the past month while emerging markets indices have done relatively well.

The Itraxx Crossover index (ITCRS5EA-GFI), which measures the cost of default insurance for European low grade borrowers, has seen the extra premia demanded by investors soar by more than 50 percent since mid-June.

In the same period, the JP Morgan EMBI plus index of emerging market sovereign debt has also fallen, but the scale of the extra spread demanded has been only about 13 percent. And the MSCI emerging markets stock index is up more than ten percent since mid-June, outpacing developed markets.

Emerging markets and other developing countries had a global collective current account surplus of 1.5 percent of world GDP in 2006, while the industrialised world had a deficit of similar scale, according to IMF and Pimco data, while the four BRIC central banks, Brazil, Russia, India and China piled up reserves of more than $450 billion in the first half of the year, taking the total to over $2 trillion.

Those sorts of numbers mean emerging markets will not be lumped together with the needy borrowers of the world, be they feckless US homeowners or highly leveraged corporate buyouts.

The accumulation of reserves means an emerging market sell-off could well be confronted by official buying. Ramin Toloui, an emerging markets fund manager at Pimco and former US Treasury official, thinks that stronger emerging markets countries, such as Brazil, Russia and Mexico are better positioned for market turbulence.

"In the past, these countries needed to borrow large amounts on a continuing basis, and therefore were at risk of defaulting when capital markets froze up," he said. "This story has now been turned on its head in some cases, with market turbulence seen as an opportunity for certain cash-rich emerging markets to buy back their bonds and de-lever."

Brazil, for example, bought back around $2 billion of its debt in the first four months of the year.

"Because market participants are conscious of this dynamic, it makes them less likely to sell or short the market during times of stress, thereby reducing volatility," Toloui said.

There is also the question of the potential effect of sovereign investment funds, to which emerging market countries such as China have committed billions recently as part of an effort to diversify their reserves.

It is impossible to know how these funds would behave in times of stress or how much they could allocate to emerging markets assets, they do represent another potential marginal buyer.

China has taken steps towards establishing a $200 billion sovereign investment fund, and there are estimates of $2.5 trillion in such funds worldwide.

Another key difference this time round is that emerging market countries are no longer hampered by a widespread inability to issue debt in their home currencies, a problem known widely as "original sin."

Having to borrow abroad left them open to exchange rate squeezes, where the cost of their external debt could rocket in local terms if their currency fell against dollar.

But many emerging issuers can now sell debt in local currencies, often at long maturities. This has both reduced supply of dollar debt and cut back on the chances that emerging markets themselves will face repayment shocks.

So, the next time we face a real market shock, the old order of who gets punished could be fundamentally reversed.

"Emerging markets (are) no longer where default risk lies, given the balance sheet improvements that have taken place in the past several years," said David Lubin, an emerging markets economist at Citigroup.

"So if credit concerns are primarily located in the US, then market response to those concerns is to sell US assets, so the dollar weakens, and what does it weaken against? Emerging market currencies..."

(At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund.)