My Winning Bet on the Top Five Global Markets of 2012

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

The swanky bars in Mayfair — London’s ultra expensive hedge fund alley — are buzzing again. Last night, I had a drink with my friend Fabio, one of the many hedge fund types who frequent the ultra exclusive — and expensive — watering holes around Mayfair’s Berkeley Square.

Although he had been caught slightly flatfooted by the recent market rally, Fabio had a spring in his step that I hadn’t seen in a while. After a couple of lousy years — he told me even George Soros’ famed Quantum fund was down 15% last year — hedge funds are exhausted with the relentless doom and gloom. As an ex-Goldman Sachs banker, Fabio agreed with his former employer’s recent prediction that we were on the cusp of a new bull market. Fabio was also putting his firm’s money where his mouth was, placing big bets on the U.S. economic recovery.

Certainly, U.S. markets just closed a gangbuster first quarter. The U.S. Dow Jones Industrial Average closed up 8.1% and the S&P 500 ended 11.8% higher. It marked their best first quarter since 1998. And having predicted Dow 15,000 by October 2012, I can’t say Fabio and I disagreed on his strategy.

Yet, I pointed out to Fabio that there is a group of unlikely stock markets in the world that have done far better than the U.S. markets. I bet him a glass of Bordeaux that he couldn’t name a single one of them. We agreed that we’d use the statistics on the back page of last week’s Economist magazine in his hand as the judge of our bet.

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Well, I won the bet. As it turns out, the top-performing markets of 2012 are in the most unlikely of places and, with the exception of Germany, aren’t even on Fabio’s radar screen.

And thanks to the advent of specialized exchange-traded funds (ETFs) in recent years, you can invest in all of these markets today, at a click of a mouse.

With that backdrop, here are the top 5 global stock markets of 2012…

1. Egypt

Investors always want to put their money to work where the outlook is the best. But investment legend John Templeton advised that you should do precisely the opposite. Find the countries where the outlook is worst, and invest in those. This guidance echoes the Rothchilds’ advice: “It’s best to invest when there is blood in the streets.”

With the eruption of the Arab Spring a year ago in the Middle East, you’d be hard pressed to find an investment destination less attractive than Egypt.

But the recent performance of the Market Vectors Egypt Index ETF (EGPT) would suggest otherwise. Despite its recent pullback, EGPT is still up 33.93% in 2012.

2. Turkey

Strategically ensconced between the European West and the Islamic East, Turkey is a country of just under 75 million people — roughly twice the population of California. The unheralded “economic tiger” of emerging markets, Turkey grew at an average rate of 7.5% between 2002 and 2006, faster than any other OECD country. In 2000, Turkey’s GDP stood at $250 billion. Today, it stands at more than $735 billion.

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According to Forbes magazine, Istanbul, Turkey’s financial capital, boasts an eye-popping 34 billionaires. That number puts it fourth in the world behind Moscow, New York City, and London, ranking it ahead of Asian and U.S. giants like Hong Kong, Los Angeles, Mumbai, San Francisco, Dallas and Tokyo.

The iShares MSCI Turkey Invest Mkt Index (TUR) is up 28.94% in 2012.

3. Germany

If Turkey is the most underrated economy in the emerging world, Germany shares that dubious distinction among the world’s developed economies.

I think Germany’s achievements — cultural, as well as economic — are remarkably underrated. Eighty million Germans export as much as 1.3 billion Chinese. And what Germans do export — precision machinery and automobiles — are all examples of world-class engineering. The irony is that as the largest economy in the euro zone, Germans are now expected to bail out its southern European neighbors. All the while, Germans are throughly reviled for doing so.

The iShares MSCI Germany Index (EWG) is up by over 21.12% this year,

4. Thailand

Since its economy was crushed in the Asian currency crisis of 1998, Thailand has staged an impressive comeback, positioning itself as a leading destination for multinationals that are abandoning China. Many European, U.S. and Japanese companies are moving factories to Thailand from China to avoid labor strikes, higher prices, corruption and a generally unwelcome atmosphere of the Beijing government. Thailand is also simply a better deal with salaries about one-third lower than in China.

The iShares MSCI Thailand Invest Mkt Index (THD) is now up over 19.9% year to date

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5. Colombia

For most investors, it’s hard to imagine Colombia as anything but a “Scarface”-style narco state. Yet, this popular image of Colombia does not do the country justice for the progress that it has seen since the ascension of Álvaro Uribe, the country’s tough and popular president, in 2002. Colombia introduced economic reforms that have turned around its economy, shrinking its national debt and kick starting its economic growth.

With a population of 44 million, and an economy the size of Indiana, Colombia never will have the economic heft of its larger BRIC rivals. But Colombia is now a place where you can make money as a stock market investor.

The Global X FTSE Colombia 20 ETF (GXG) is up 18.96% this year.

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