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Forget China

Nathan Parmelee
December 10, 2007

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, E-House (NYSE: EJ  ) has nearly doubled, and China Finance Online (Nasdaq: JRJC  ) has more than quintupled.

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 airport operator Grupo Aeroportuario Del Sureste (NYSE: ASR  ) is always worth k