Surprising Corners of Resilience

 | Jun 26, 2012 | 11:30 AM EDT  | Comments
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TUR

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VNM

The first half of a wild 2012 will come to a close this week, leaving a significant disconnect between many investors' outlooks and the state of their portfolios so far this year. Though sentiment has turned overwhelmingly negative in the last several weeks, many investors are in better shape now than they were when they started the year. Thanks to an impressive rally in the early months of 2012, many indices will close June in positive territory, despite a dismal two month stretch to end the first half.

The bulk of the anxiety can be traced to one central location: Europe. The continent's debt woes have weighed on financial markets around the world, causing steep selloffs from the emerging markets of Asia to the developed markets of North America. But while few economies have been spared from the European fallout entirely, some have handled it much better than others have done.

A look at some of the best-performing country ETFs to date in 2012 may shed some light on markets that still maintain safe haven appeal in the current environment, even if they don't come close to matching the traditional definition of such an investment.

The Market Vectors Vietnam ETF (VNM) has been one of the top performers on the year. The fund has appreciated by about 25% since the calendars turned to 2012, outpacing other emerging markets by a wide margin. Vietnam's economy has expanded at a rate of close to 6% this year, and the government is targeting even higher expansion in 2013. Moreover, this country is reportedly embarking on an ambitious plans to restructure financial markets, and it could be consolidating state-owned companies in coming years. If the reform efforts there continue to gain traction, this market could see its appeal to international investors rise steadily.

Another international ETF that stands out from the crowd so far this year is the iShares MSCI Turkey Index Fund (TUR), which has appreciated by about 23% so far this year. Part of Turkey's secret sauce has been relatively low debt. The country has one of Europe's lowest ratios in debt to gross domestic product, thanks in large part to a creative two-tiered interest rate system that discourages inflows of "hot money" that can exacerbate problems in certain environments. The country has also been aggressive in implementing incentives to promote local manufacturing, and it has successfully strengthened relationships with several other emerging markets.

All that adds up to a stellar performance in 2012, and a relatively robust outlook for the future. Turkey's economy has been expanding at annual rates close to 10%, and is one of very few markets whose debt has been recently upgraded.

 It's always important to use caution when chasing returns, and such a strategy can leave investors with an uphill climb. But, in the case of Vietnam and Turkey, the recent expansions have been built on a solid foundation that has positioned these economies to continue thriving in the coming years, even if troubles persist in Europe.

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