Demand from China and India for energy, industrial metals and other raw materials is a well-known investment story. But is it still a viable story?

That's what MacKenzie Davis wanted to know. So the co-manager of the RS Global Natural Resources Fund (RSNRX) visited China and India in September, meeting executives and employees at industrial and mining firms that have profited from these countries' rapid economic growth.

San Francisco-based Davis, who manages the $1.7 billion no-load mutual fund with Andy Pilara Jr., was seeing China and India for the first time; Pilara made a month-long trip there about a year ago.

A lot can change in a year, such as a 50%-plus jump in the average price of a gallon of gasoline — or for that matter a 40% gain in the Global Natural Resources fund. Moreover, getting a handle on emerging economies is challenging enough for investors based in those markets, let alone investors thousands of miles away.

"The biggest challenge for anybody investing in the resources space today is trying to get your arms around the dynamics," Davis said. He and Pilara are strict about valuations, looking to buy shares of companies at a discount to cash flow. Staying true to that discipline in a hot sector can be tough.

"You're trying to be sure about the investment themes you have in place," Davis said of his China and India trip. "You're either challenging them or finding data to support them."

Two weeks offered only a glimpse, but Davis said he returned home with a sense that long-term demand in China and India for energy and raw materials remains strong and that fears of supply constraints are mostly overdone.

China's shop

In each country, Davis primarily visited companies involved with base metals and industrial production — industries that dominate the Global Natural Resources portfolio.

China brought a look at Alcoa Inc.'s (AA) aluminum plant, for instance. Alcoa isn't a fund holding, but the managers do have investments in rivals Alcan Inc. (AL) and Century Aluminum Co. (CENX)

Aluminum is energy-intensive, and Davis had surmised that China's demand for power — and related shortages — would constrain capacity. But seeing the facilities and talking with management alleviated his concern.

"Power is not as much of an issue as we thought," Davis said. "The Chinese can produce as much aluminum as they want."

Sometimes the pieces fit together in seemingly unconnected ways.

For instance, Davis was aware of predictions that abundant supplies of liquid natural gas, or LNG, would erode natural-gas prices in North America. That's of more than passing interest to Davis, as the fund has a sizeable stake in both natural gas and oil through companies like EnCana Corp. (ECA) , Western Oil Sands Inc. (WTO) and Talisman Energy Inc. (TLM) .

At a meeting with officials of the Chinese National Nuclear Commission, Davis learned that China is just beginning to expand nuclear generation capability — a highly capital-intensive process.

This information led Davis to conclude that natural gas and oil would be central to China's electricity and power needs for some time. "So an investment in the gas-levered names, over a five-year period, you feel better about," Davis said.

India Inc.

India gave Davis a look at Tata Motors Ltd. (TTM) , that country's largest automaker. India's growing middle class will demand more cars and trucks, creating a need for investment in roads and infrastructure, Davis said.

Tata now builds vehicles mostly with regular carbon steel, Davis pointed out. But with more production slated for export, the company will need higher quality galvanized steel.

Galvanized steel requires zinc. Not coincidentally, the RS fund has a large position in Teck Cominco Ltd. (TEKSVB) , a leading Canadian zinc producer. The fund also owns shares in Commercial Vehicle Group Inc. (CVGI) , an Ohio-based company that builds truck interiors for, among others, Tata Motors.

On the visit to Tata Motors, Davis learned that the company aims to double commercial vehicle production and to sharply consolidate vendors, which Davis said could benefit Commercial Vehicle Group.

"These companies are moving from being domestically focused to internationally focused," Davis said of Tata Motors. "The need to meet international specifications for their products becomes more important."

Davis said he found striking contrasts between China and India in their approach to industry and economic development.

"China is an investment-led economy," he said. "They've had very tangible targets or events in the future that are being invested around" — for example, the 2008 Olympics.

"India is more of a demand-led economy," Davis added. "You're seeing rapid expansion in wage growth, especially for educated professionals. The opportunity is clearly there."

"It's also clear," Davis noted, "that this is not a linear process. There are going to be fits and starts. You really need to spend time on the ground developing networks and perspectives."