Warren Buffett has said that "You only learn who has been swimming naked when the tide goes out." He was talking about financial institutions, but his remarks ring equally true for emerging markets.

I've written before about the fallacy of grouping emerging markets together -- a practice that likely took hold because of an unprecedented period of concentrated global growth. The BRIC acronym is only that -- an acronym. It does a disservice to investors to bundle the four major emerging markets together, as their highly divergent economic performance suggests:

BRIC Country

Brazil

Russia

India

China

Net Fund Flows in 2009

$2.3 billion

$338 million

$342 million

$3.2 billion

Benchmark Index P/E

15

6

21

27

2009 GDP Growth Forecast

(1.3%)

(4%) to (8%)

4.5%

6.5%

Source: Bloomberg, May 21.

If I had to rate them by their long-term appeal, the BRIC would become the IBCR:

  1. India
  2. Brazil
  3. China
  4. Russia

Unfortunately, IBCR doesn't quite have the same ring to it. But let's dig deeper into why I put China third on that list.

1. China's benchmark valuation is too high
As you can see by the table above, the Chinese market has received the bulk of foreign investor flows this year, which has pushed the index valuation to the highest among the BRIC club. Some investors may say this is warranted -- China has the highest growth potential in the near term. Still, a P/E of 27 in an economy facing some headwinds seems a bit rich to me.

Yes, the Chinese market was even more expensive 18 months ago. But when things get out of hand valuation-wise, smart investors sell. Warren Buffett sold his entire PetroChina (NYSE:PTR) stake for around $150 a share; the stock subsequently went above $250 before crashing into the $50s. Shares now trade around $120.

My favorite emerging market, India, is no longer cheap either, after a monstrous bull run that shifted into overdrive due to the positive election results in May. Still, there have been muted investment flows into Indian equities this year, which may contribute to a further spike given the positive growth outlook and the country's discount compared to China.

2. Chinese stimulus will affect state-owned enterprises and cause rising bank losses
Chinese Premier Wen Jiabao has urged the nation's banks to lend more money despite the fact that most borrowing companies are reporting large drops in profits. Obviously, lending to money-losing companies could ultimately result in large losses for the banking system. Given the government's influence over the Chinese economy, though, banks have done as they were told -- corporate loans during the first four months of 2009 were almost triple last year's pace in the same period. But no one should forget that indiscriminate lending has a very high cost in the end -- the U.S. being the example du jour.

Similarly, it's easy to tell state-owned enterprises to go ahead with unprofitable projects so they can stimulate the economy. It's harder to do the same with private investors, who will take measures to protect themselves.

3. Experts disagree on recovery shape
No one's entirely sure how China's economy will respond to changing global economic conditions. For instance, BHPBilliton (NYSE:BHP) CEO Marius Kloppers doesn't expect a sharp recovery in demand for commodities, which China has taken special interest in lately. Rival Rio Tinto (NYSE:RTP), on the other hand, is expecting a "V-shaped" recovery, according to Bloomberg.

Personally, I side with Kloppers, as I don't see where a V-shaped recovery could possibly come from. Just as easy credit helped fuel global expansion, we are now witnessing the process in reverse, with consumers tightening their belts to address high debt levels. That in turn will pressure China's growth.

4. Sharp moves
Moreover, to the extent that there'll be a big recovery, stocks have already priced it in. PetroChina is up some 80% since March -- while Aluminum Corp. of China (NYSE:ACH) has more than doubled. CNOOC (NYSE:CEO), China Life (NYSE:LFC), and others have seen similarly sharp advances.

I view Chinese stocks -- and, for that matter, all BRIC stocks -- as leveraged proxies for global growth. Lately, the green-shoots theory that has supported the recent rally has taken a life of its own, where less bad economic data is seen as good. Flat is the new up.

To me, this optimism is misguided, especially because China is still export-dependent, and consumption in the developed world is likely to disappoint. Markets have pushed higher than the economic stabilization we've seen since March would warrant.

The bottom line for investors: If you're looking for BRIC exposure, I still prefer India -- if only because foreign investors have to play catch-up. Also, of the bunch, it's the least dependent on exports. The Chinese market is simply too expensive to chase right now.

More Foolish pros and cons on China:

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Fool contributor Ivan Martchev does not own shares in any of the companies in this story. The Fool has a disclosure policy.