Remember this past February, when the Shanghai Composite tumbled 8% in a day? Investors got spooked, they sold stocks across the board, and panic set in.
So what's happened since?
The Shanghai market is up almost another 100%.
The great disconnect
China's market is unquestionably hot. So are Chinese ADRs, which aren't always listed in Shanghai. In the past year, China Unicom (NYSE: CHU ) has more than doubled and LDK Solar (NYSE: LDK ) has more than tripled.
While China's economic growth is very real, so was the growth of the Internet nearly a decade ago -- and that turned out very, very badly.
China will likely have a stronger and more impressive economy a decade from now, but there are signs of inflation, as well as signs that the country may have to moderate its growth to conserve one of the most basic resources we all take for granted: water. In other words, the balance of risk and reward is now better in other developing economies -- ones that haven't seen their markets triple in a few short years.
Three to consider
Here's a short list of countries that don't have the China premium yet offer above-average growth potential and plenty of intriguing opportunities:
Mexico's economy is tied to the U.S. economy. That's mostly positive, but with economic growth in the U.S. currently slowing, shares of Mexican companies have been punished. This situation screams "opportunity," because Mexico has significant long-term growth potential independent of the United States. Furthermore, many Mexican firms have a competitive advantage that companies in other countries can only dream about: dominant market share. And that's why beer and soda producer Fomento Econmico Mexicano (NYSE: FMX ) and homebuilder Homex Development (NYSE: HXM ) are always worth keeping an eye on.
Of the four BRIC countries -- Brazil, Russia, India, and China -- Brazil gets the least love. The country has struggled in the past, but it's been doing very well over the past few years and continues to have bright growth prospects, with less dependency on the U.S. than Mexico has. These reasons alone explain why Banco Itau (NYSE: ITU ) and other well-run Brazilian firms should be high up on any American investor's watch list.
For years, the Philippines has been full of potential ... without ever quite realizing it. The current president has worked hard to get the nation on the right track, and with GDP growth over 5% in each of the past three years, there are finally tangible signs of above-average growth in the country. The number of companies that investors can pick through isn't as numerous as those in Mexico or Brazil, but it's tough to argue the 4.6% yield, near-Monopoly status, and growth prospects of Philippine Long Distance Telephone (NYSE: PHI ) .
Grab your passport
No matter how bright the future, investors must take a pass when valuations become unfavorable -- as they have in China. Fortunately, we have the rest of the world to look to for bargains, and now is the time to get going.
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