This Eurasian country was the best performer among the emerging markets in 2012. Turkish stocks climbed an astounding 56% last year. On a recent trip to Istanbul, Frank Holmes investigated this surprising trend. Take a look.
While most of the talk about investing in emerging markets over the past several years has focused on Asia, particularly China and India, Latin America has been quietly enjoying a nice little boom of its own.
On Monday they released a new report on international capital flows which relaxed its opposition to exchange controls.
Some markets (Colombia, Mexico and Thailand to name a few) have performed well. Others have disappointed (Brazil and Russia stand as two laggards.)
But as Money Morning Global Investing Strategist Martin Hutchinson explained last week, economic growth has shifted to these developing economies.
Believe it or not the world doesn't revolve around the United States-or the Western world.
September was not too shabby either in terms of dividends and payout increases. At this point it is fair to say 2012 will prove to be a very favorable year for income investors.
On one hand, the continent's history is hard to forget. The Argentine currency crisis and Colombia's reputation for nefarious exports are just two black marks on South America's past. A third is a rap sheet littered with leftist, socialist governments with penchants for chasing away foreign investment.
Fifty years later, though, I like it for a slightly different reason. It's become a place where I like to invest.
In fact, I believe the region is the world's newest "sweet spot" for investors.
Of course, you don't hear much about the economies of Southeast Asia. Given the media's penchant for bad news, that alone should tell you something.
But unlike the U.S., Europe, China, India and Japan, the region is doing just fine, which is why you should consider putting some money in places like Malaysia and Singapore.
In fact, in a moment I'm going to tell you what my favorite company in the region is.
It's embodied by those words penned so long ago by a young Thomas Jefferson...
It's the idea that "We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness."
If you don't believe me, just take a look at the performance of the iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM).
With the West spinning its wheels, the truth is there's a good deal of money to be made in these markets in 2012.
One emerging market I like is Thailand.
On the other hand, this is also true: emerging markets give investors the benefit of the world's fastest economic growth.
Investors would be wise then to combine these two strategies by buying emerging markets stocks that pay steady dividends.
In practice, this is more difficult than it ought to be - but it's not impossible.
In fact, as you'll learn later I have found numerous ways to profit from this best of both worlds strategy.
What You Need to Know About Emerging Market Dividend StocksDividend-paying stocks in emerging markets have the same advantages as they do in the U.S. market.
Just like here in The States, a sizeable dividend from overseas is not only money in your pocket, it's also evidence that the management is working in your interests as a shareholder.
And by paying dividends investors can be sure that at least some of the earnings the company is generating are real and not the result of an accounting flim-flam.
If a company in a fast-growing emerging market is able to pay a decent dividend and participate in local growth, then you can anticipate very good returns indeed, since the dividend itself is likely to grow on the back of the company's rapidly increasing profits.
Of course, there are always risks in emerging market investing, but a good yield gives your holding a solidity that isn't present in companies with mere paper earnings.
But here's what you need to know...
You're just going to have to be careful - more so than in years past - because right now the line drawn between successful markets and markets that are in danger of collapse is treacherously thin.
Take the fashionable growth markets, the BRICs - Brazil, Russia, India and China - for example.
Dead WeightIt's been 10 years since Chairman of Goldman Sachs Group Inc. (NYSE: GS) Asset Management Jim O'Neill coined the BRIC acronym. His recommendation was certainly effective - one of the best of all time, even. But today, all four BRIC countries face problems, and their troubles illustrate the dangers of following investment fashions.
Just take a look:
- China appears the least troubled of the four BRICs. However, it looks to be facing a recession, inflation is approaching double digits and there is a massive bad debt problem in the banking system. Too much money has been invested in uneconomic rubbish - "malinvestment" as the Austrian school of economics calls it. My own guess is that China will do fine long-term but you probably don't want to invest until the size and shape of its problems is clear.
- India has a government that can't stop spending, inflation over 10% and huge corruption. Furthermore, its stock market is still pretty inflated. I wouldn't put much money there until the government changes. Contrary to what you read in the media, almost all the real liberalization progress came under the Vajpayee government of 1998-2004, which the Indian electorate then ungratefully threw out. I'd want an Indian government without the corrupt socialist Congress Party before I'd invest; only then could I be sure that Indian gains would not be poured down a rat hole.
- Brazil has been run by big-spending socialists since 2002 and has been immensely lucky to benefit from the commodities boom. Now the boom has topped out (probably temporarily) but its government is still overspending and has begun to harass foreign investors. Brazil is in big trouble if commodities prices fall.
- In Russia, Vladimir Putin will become President again next March. Need I say more? Like Brazil, Russia has benefited immensely from the commodities boom (in its case, primarily the run-up in oil prices). However, it treats foreign investors even worse than Brazil does, it is even more corrupt and it appears to be running out of money.
The Eurozone's debt problem could have been solved early on by throwing Greece out of the euro (a much deserved punishment). However European authorities have now thrown so much money about in such unproductive ways that it's doubtful whether the euro is even salvageable anymore.
A recession in 2012 seems unavoidable, although Germany may benefit from the problems of its trading partners (if it is not forced to bail them out). Well-run European Union (EU) members that are not part of the Eurozone, such as Poland, may also benefit from the chaos, although Poland's current foreign minister Radek Sikorski doesn't seem to think so.
Japan has done so badly for so long that it may be impossible to revive. If public debt were still at the level of a decade ago, Japanese shares would be a screaming buy, as the market is at a quarter of its 1990 peak. However, with debt around 220% of gross domestic product (GDP) and no sign of the country's budget problems being solved, it may be nearing the point of no return and eventual debt default. On the whole, it's best avoided.
Apart from the United States, that leaves one obvious rich-country market, 
And two fast-growing developing economies just became a lot more enticing.
I'm talking about Colombia and South Korea - both of which just signed free trade agreements (FTAs) with the United States.
Both treaties date back to the last days of the Bush administration - when bilateral trade deals were fashionable - but had gotten hung up in Congress.
To some extent, free trade agreements merely deflect trade from other paths. However, since the EU has signed a trade deal with South Korea and is negotiating one with Colombia, there are both defensive and trade-building reasons for these deals.
South Korea is a trillion-dollar economy and one of the United States' most important trading partners, with two-way trade totaling $74 billion in 2008. And Colombia's potential as a trading partner is enhanced by its geographical position - close to both the East and West Coast U.S. markets.
Both countries are growing quite fast. In fact, Colombia is expected to clock growth of more than 5% in 2011 and 2012.
The Biggest BeneficiariesThe South Korean deal offers the most potential to U.S. exporters, as the deal is expected to add about $10 billion to U.S. exports and gross domestic product (GDP).
U.S. exporters of agricultural products, which are projected to double from their current $2.8 billion, will be the primary beneficiaries. However, U.S. auto manufacturers and banks will also have a chance to break into the market.
On the other side, Korean exporters of cars, trucks and computer equipment will benefit from better access to the U.S. market.
Colombia has a thriving agricultural sector, but U.S. meat exports should jump significantly. Pork exports, for example, are forecast to grow 72%. IT companies and chemicals producers also will gain improved access to the Colombian market. But the greatest potential will be unlocked in the heavy equipment sector, as Colombia races to develop its mineral resources.
Reduced sanitary inspection barriers will improve the trade flow both ways. That will increase demand for Colombian coffee and flowers. But the big breakthrough will be in Colombia's energy sector, as the country's oil is an increasingly important export to the United States.
Now let's take a look at some of the specific companies that will cash in on these deals.
My favorite recommendation, Chile, gave a mediocre performance, down 3.2% on the year.
On the other hand, I recommended Russia at several different points last year. That's not a market that I normally favor. But I'd been suggesting that low Price/Earnings (P/E) ratios and a commodity or energy orientation in an economy would be the keys to finding successful emerging markets in 2011.
Currently, the Russian market is up 19.2% in dollar terms, the best performance of any market except Hungary (which also satisfied my "low P/E" criterion, as it is recovering from a very deep recession).
In this installment of the current Money Morning "Quarterly Report" series, let's take a tour of the world's emerging-market economies. We'll study their most recent performance, and we'll identify the best investment candidates for the months to come.
We separate the potential winners from losers. Read on to see which is which...