If you look at the chart of the Istanbul Stock Exchange your gut instinct is to cut and run. But is that the best strategy for an emerging market with great upside potential?

Like other emerging markets, Turkey is taking it beating from inflation. So far, the government’s policies have kept inflation below 10% — putting it a notch above China.

Let’s face it: inflation is wreaking havoc on all markets, including the U.S. In fact, inflation is probably the biggest cause of volatility in emerging markets today. For investors, that leaves that basically leaves two choices: 1) go into something stable like bonds or 2) get in at the bottom and ride out a market that has the legs for long-term growth.

Turkey’s economic fundamentals tell me that long-term growth is the way to play the Istanbul Stock Exchange. And the best way to get in now is through the ISE National 100 Index. Since it reflects the performance of the Istanbul Stock Exchange, the chart below may lead you think that Turkey is in deep trouble. However, if you discount the effects of inflation, Turkey has the potential to be a good place to put your money for the next few years.

One of the most important aspects of investing in emerging markets is government stability. The largely Muslim nation is on a quest to make important reforms for the 21st century.

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Roller-coaster ride is a good way to describe the Shangahi SSE Composite Index.

If you were in it a year ago and rode it up for an exhilarating six months you would’ve gained 61.5%. That’s darn good when you compare it with the Dow Jones Industrial Average, NASDAQ and the S&P 500 which were pretty much flat.

(000001.SS = SSE Composite Index; ^IXIC = NASDAQ; ^DJI = Dow Jones Industrial Average; ^GSPC = S&P 500)

As you can see, the next six months would have wreaked havoc on your stomach. The plunge in the SSE Composite Index reached 39.9%. After the nausea faded you could still say, “Well, OK, but I’m still up more than 40%” and that’s a great way of looking at it. But what if you jumped in during November and rode it down?

What has fueled this roller-coaster ride in the SSE Composite Index? It’s called the “inflation contagion.”

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The news is great in emerging markets…India’s growing middle class can now afford servants.

The boost in Brazil’s currency makes the country’s treasury bonds more attractive than ever.

And Russia, China, India, Malaysia, South Korea and Brazil still look like great bargains compared to the U.S.

Is this all easy money ripe for the pickin’?

Not exactly…with oil jumping $11 last Friday, inflation running rampant on forecasts of $5 gas and Wall Street’s banks sinking deeper into the abyss investors are grinding their teeth figuring what to do next.

The mental horsepower needed to extract profits from these storm-tossed markets has never been greater. That’s why I was truly dismayed to read a front-page story in our hometown Baltimore Sun about American teenagers who will be our future business leaders.

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