The FT Alphaville blog discusses a new research report by Merrill Lynch that says any Fed easing due to subprime mortgage woes ‘could fuel the biggest bull run ever seen in emerging markets,’ in the words of FT. In short, here’s the scoop on emerging market stocks according to Merrill:

“We continue to believe the asset class is undercapitalised, under-leveraged, under-owned and under-valued.”

This seems to be a valid argument, especially before the hedge herd, mutual funds and lastly, individual investors drive prices up. In fact, Merrill predicts 20% annualized growth to 2,010 (currently 964), through 2010 for the MSCI Emerging Markets Index.

But, how about Japanese small cap stocks?

Any chance they are on the radar?

Who knows! Last time, the ride got really bumpy and turned violent when everyone remembered liquidity is king. One point to be made here, the so-called emerging stock markets of Japan are full of interesting value plays that are certainly worth a look.