The Best Market This Year

Will it be the same as last year's top market?

Dave Mock
Dave Mock
Dec 27, 2007 at 12:00AM

The best stock. The best fund. The best exchange-traded fund. As investors, we're constantly on the lookout for the best opportunities.

Just as we salivate to crown the year's best-dressed celebrity or the best pizza in Manhattan, we drool over charts and tables of stocks that surged hundreds or thousands of percentage points in 12 months. That way, we can dream about finding the next stock that will repeat or beat that performance in the coming year.

But rather than just looking at the story of individual stocks that soared last year, investors can learn more by looking at markets in general for the lessons they teach.

Looking back at the best
Comparing world markets is tricky because it involves adjusting for currency fluctuations and inflation, which is never straightforward. Thankfully, the Motley Fool Global Gains team has developed a model to compare world markets on a more even basis. With a common reference, yearly and monthly comparisons help investors see just what regions of the world are flourishing or decaying.

The results for 2007 so far follow the amazing discovery in 2006 -- the United States comes nowhere near the top five markets for 2007. Neither do many other advanced, industrial nations we commonly equate with economic growth. So, which international market currently tops the list?

(Opening the envelope ...)

Bangladesh, with a whopping 134% return year to date. But most investors haven't a clue where Bangladesh is, let alone how to invest in the country.  

The political turmoil in Bangladesh also makes the region one where all but the most risk-tolerant investors don't want to tread anyway. And the early stages of growth in Bangladesh have just as good a chance of reversing course as they do continuing higher, so investors shouldn't just jump at the best market determined by any one year's time frame.

But other, more stable markets are booming. China places in the No. 2 spot on the Global Gains list with a 132% rise after capturing No. 3 last year with a 130% gain. And if an investor is weary of over-exuberance on Chinese equities, they might consider less-hyped regions like Peru and Nigeria that have also performed well.

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For the U.S. markets to grow at rates this high, you'd have to see hundreds of high-growth success stories such as recent winners like Abercrombie & Fitch (NYSE:ANF), up 22% annually over the past three years, or monster stock Terra Nitrogen (NYSE:TNH), which has returned a staggering 345% over the past 12 months. Even companies like Jos. A. Bank (NASDAQ:JOSB) and Urban Outfitters (NASDAQ:URBN) -- posting 28% and 30% compound annual growth, respectively, over the past 10 years -- are too rare in the United States. Much of the U.S. market is made up of slower-growing or cyclical industries.

But many of the industries that show matured growth in the U.S. are booming internationally. For example, Russian wireless services providers VimpelCom (NYSE:VIP) and Mobile TeleSystems (NYSE:MBT) have returned 94% and 45% annually, respectively, over the past three years. These are large, multibillion-dollar corporations tapping new regions of growth, and companies such as Chilean supermarket operator Distribucion y Servicio (NYSE:DYS) benefit from growing economies in sectors that are more saturated in the United States. Distribucion y Servicio's stock has returned more than 23% annually over the past three years.

Wrapping up 2007
Early in the year, I made a prediction that the United States would not be the top market of 2007. I even committed to eating a pair of dirty socks if I was wrong. Well, as the year winds down to a close, I'm feeling pretty good about my wager, seeing as how the S&P is up only 5.5% year to date. Turn out the lights, folks, this party's over (though I will save some soiled socks for any future predictions).  

But investors should already be looking out on the horizon for next year's top market. And not only the top markets, but the best companies to own within them. Our premier team of Motley Fool Global Gains international analysts is doing just that -- scouring the globe for the best international companies with solid management and transparent finances for your consideration.

In fact, advisor Bill Mann and his team just returned from a research trip to Brazil, Argentina, and Chile. You can read all of his updates and stock ideas from that trip by clicking here and joining Global Gains free for 30 days.

This article was originally published as "The Best Market in 2006" on Feb. 14, 2007. It has been updated.

Fool contributor Dave Mock doesn't sweat, he glistens. He owns no shares of companies mentioned here. The longtime Fool is also the author of The Qualcomm Equation. The Motley Fool has a disclosure policy.