High-flying stocks headquartered in emerging economies with questionable political stability, high levels of corruption, subpar infrastructure, and poor legal and regulatory systems have been popular over the past five or six years -- and understandably so. For example, the Vanguard Emerging Markets Index Fund, with current top holdings in China Mobile (NYSE: CHL) and America Movil (NYSE: AMX), has gained 333% since February 2003.

But for the more risk-adverse investors out there who still want exposure to foreign markets, The Economist's recent ranking of global operational risk might be able to help. Its country-by-country rankings are based on 10 criteria that include a variety of economic, government, and systemic factors.

Here are the five countries with the lowest operational risk and notable stocks headquartered therein:


Notable Stock


Novartis (NYSE: NVS)


Aktieselskabet Dampskibsselskabet Torm


Nokia (NYSE: NOK)


Autoliv (NYSE: ALV)


Flextronics (Nasdaq: FLEX)

Source: Economist Intelligence Unit and Capital IQ, a division of Standard & Poor's.

The U.S. ranked 25th, behind Cyprus and Estonia, oddly enough.

A few caveats
It should be noted that the top five countries listed above are developed markets, and most likely do not have the same growth potential as emerging economies.

If investing in stocks in more developed economies interests you, be sure to take a look at annual reports to see the countries where a given company generates its revenue. For instance, Novartis, while based in Switzerland, does 44% of its business in the Americas. Many large companies hailing from developed markets already have a significant exposure to the United States or its close trading partners, which can diminish the diversification benefits of foreign investing.

On the other hand, if you'd rather not concern yourself with picking individual foreign stocks, there are many exchange-traded funds (ETFs) out there to assist you. For one-stop international diversification in developed markets, there's the iShares MSCI EAFE (NYSE: EFA) or the Vanguard Europe Pacific ETFs to consider. To get even more market-specific, there are regional ETFs, like the iShares MSCI Sweden and iShares MSCI Singapore funds.

But the fact that a company or an ETF represents an operationally "safe" country does not mean either is a screaming buy. As always, you will need to do additional homework.

To get started with that homework, here's some related Foolishness: