In the above chart, I’ve charted several iShares International ETFs – FCHI (China), EWZ (Brazil), EZA (South Africa), ECH (Chile), and the S&P 500. This is the performance of the various indexes from the Summer of 2008 until the end of 2008. As has been talked about by many, international diversification (and almost any sort of asset class diversification) failed badly in our unprecedented market slide in 2008. All the indexes fell at least 30% over the course of the last half of the year, only Brazil escaped a near 1.00 beta with the rest of the markets, it decided to fall even further (nearly 60%).

It seems that the harder they fall, the harder they bounce. Brazil and Chile have lead the international rebound of late. (An interesting topic that I’ll have to delve into deeper. For now, those interested might like this Economist article on Chile’s Economy Stimulating and this article on Brazil’s foreign currency reserves.) All in all, it seems that the S&P 500, barely break even on the year, has in fact lagged the rest of the world. It would seem that despite not insulating us from the downturn, international diversification did, in fact, prove a winning strategy over the last 12 months. Let’s take a look.

As you can see, while the markets traded roughly in the same direction over the last year, clear winners and losers can be found. The S&P trails every foreign index in the set other than Brazil. And, interestingly enough, despite a 40% run in the first half of 2009, Brazil remains a laggard in this interational grouping.

What does this tell us? Well, for one, it would seem that venturing forward and looking for some stocks with international exposure is a prudent thing to do. Where should you look? Well, it would seem that the South American economies are the flavor of the day so I’d start there. What are your favorite international picks?

If you’re reading this website, though, you’re probably using something which had the majority of its parts made in Taiwan. To be honest, I’m not sure that Taiwan should count as an emerging market. The country was the recipient of much US backed aid and support throughout the 50s and 60s and from that influence blossomed an economy lead not by low skilled manufacturing but by a high-tech industry which rivals our own Silicon Valley. While most of the economies in the Pacific Rim are co-dependent, it’s hard to say whether or not there’s that much correlation between Taiwan’s markets and those in the rest of Asia.

It’s probably why it’s been left out from all the buzz about emerging markets. Taiwan’s TAIEX treaded water for the most of 2006, yet when the rest of the Asian markets sold off earlier this year, it was Taiwan’s which started a wild run of its own. The iShares Taiwan ETF (EWT) has run up nearly 20% in the last two months alone. (See Graph above) What brought this about?

Well, investors likely noticed that, while Taiwan doesn’t have the sexy growth that the rest of the emerging Asian economies have, it also was not plagued by the same volatility shown my China and India in recent months. While it was bad that Taiwan treaded water in a year when certain emerging markets were up 50 to 100%, it wasn’t so bad after when Taiwan’s markets continued to tread water during the sell off and now looked to be trading a huge valuation discount relative to newly inflated peers in Asia.

So, what’s not to like? High-tech economy, cheap valuations relative to peers in Asia, and the tide seeming to turn as far as investor sentiment towards Taiwan. Sounds like a slam dunk. Well, that’s not entirely the case. The country’s companies are at a huge disadvantage to many others in Asia as a result of the fact that Taiwan is a quasi-country with little to no real diplomatic power. Further, the current government administration has done everything it can to further isolate itself diplomatically while also upsetting its neighbor (and the country which lays diplomatic claim to the island of Taiwan), China. This is not good as it has resulted in mass capital flows out of Taiwan as Taiwanese entrepreneurs have started to simply leave the country and try their hand in China. Second, as China is Taiwan’s number one trading partner, the government’s current stance on trying to insulate itself and its businesses from China has done nothing but hurt Taiwan’s leading companies. For example, it was Taiwan’s cell phone carriers like Chunghwa Telecom (traded on the NYSE as CHT) and FarEastOne which could have taken the Chinese market by storm. Instead, they were barred from making investments in the mainland market and look now to have run out of growth options.

So, is Taiwan’s growth story over? Well, it would seem that the country is at a crossroads. While its domestic economy still has a ways to go before becoming fully modernized it is a lot farther along than most countries in Asia like China and India. As a result, you are not likely to find the kind of explosive growth there as you will in other emerging markets. That being said, a change in the country’s governments stance toward cooperation with China could pave the way for some dramatic returns as Taiwan is a country which would benefit enormously from the growing Chinese market, as nearly all the people there are Chinese by heritage anyway they don’t have to fight cultural barriers to participate in the mainland. Guess what? We’re in luck, a change in government may be on the way as elections are coming up at the end of this year and early next year. Current polls show that the more business and China friendly KMT party is likely to take back control of much of the country’s government and this should likely pave the way for reform and more open trade. (Another reason possible reason as to why Taiwanese stocks may be trading better. International investors loading up in anticipation of a regime change.)

So, how can you play the Taiwan space? Well, we’ve already mentioned the iShares Taiwan ETF (Symbol: EWT). There are also two other closed ended funds which trade on American exchanges – The Taiwan Fund (TWN) and The Taiwan Greater China Fund (TFC). The Taiwan Fund is rather similar to the iShares ETF, though it is actively managed, and has also traded at a discount to NAV as recently as March. (I can’t seem to find more data on it as its website seems to b down.) It also has much better weightings as the iShares Taiwan ETF tends to be weighted very strongly towards Taiwan’s two largest companies – Hon Hai and Taiwan Semiconductor. The Taiwan Greater China Fund is an interesting play as its stated goal is to invest in Taiwanese companies which get most of their revenues from China. A great way to play the growth in China without the volatility and ridiculous premiums. The Taiwan Greater China Fund is also trading at nearly 10% under its NAV.

Not interested in closed ended funds? Not convinced that Taiwan’s market as a whole will continue to appreciate, but still interested in playing some of Taiwan’s industry leading high-tech companies? Well, the good news is that you likely can do that as well. Disheartened companies in Taiwan have more often been skipping listing on the TAIEX and simply issuing shares in Hong Kong or the USA. And, as with many international countries, there are many companies which also issue ADRs (American Deposit Receipts) which are traded on US exchanges. Obviously, for American investors, those stocks listed here are probably most relevant so here’s a short list of Taiwan’s heaviest hitters. We’ve already mentioned Chunghwa Telecom (CHT), Taiwan’s version of Ma Bell the leading cellphone and telephone provider in Taiwan. There’s also the two of the largest semiconductor producers in the world Taiwan Semiconductor (TSM) and United Microelectron Corp. (UMC). In addition to producing most of the world’s semiconductors and computer chips, Taiwan has recently also laid claim to being the world’s largest producer of LCD panels and the leading company in Taiwan producing them is AU Optronics (AUO) which also lists an ADR here in the US. Two rather interesting plays on the Taiwanese economy might include GigaMedia (GIGM) and Advanced Semiconductor Engineering (ASX). The first produces broadband gaming technologies and the second does semiconductor design and testing.

India as an investment opportunity is often overshadowed by its close neighbor, China. China’s government and economy tend to make the most international noise, but let’s not forget that India represents a potential consumer base every bit as large as China’s and is a country that is arguably further along in the emergence of its middle and upper class. A look at the following graph paints the picture well enough:

The little yellow line is the S&P 500 and the actual chart is of IFN (Blackstone’s exchange traded India Fund). It doesn’t necessarily track an index of Indian stocks, but it is a relatively good approximation of the returns available in India. As you can see, despite the recent fall in the Indian markets, returns have been quite good over the last 5 years. Contrary to the popular stereotype that India’s economy is buoyed by low skill companies specializing in phone service, India’s economy is lead by high skill companies including true information technology leaders and pharmaceuticals. Furthermore, the country’s GDP is growing at a terrific rate (9%+) and the rupee continues to strengthen against the dollar.

Things aren’t all rosy, though. As seen in the graph above. Indian stocks on average of fallen upwards of 14% on the year. Despite the sell-off, Indian stocks still trade at some of the highest price-to-earnings multiples of any in the world. There are questions about the economy as well including a very high fiscal deficit as well as ominous inflation trends.

So, should you invest in India? Maybe. But, if you’re not an Indian resident, it’s actually quite difficult. At the moment, only one exchange traded product, the MSCI India iPath ETN (NYSE: INP), tracks an India index. Two closed ended exchange traded funds also exist, the aforementioned India Fund (NYSE: IFN) and the Morgan Stanley India Investment Fund (NYSE: IIF). As a result of the lack of options for investing in India, these funds often trade at large premiums to NAV and, as a result, can be especially risky when the Indian markets top off as they have recently.

Don’t worry, though. Given that the market seems to be correcting a bit, there is time to wait. Indian ETFs are on their way so keep an eye out. Furthermore, opportunities exist to invest in Indian companies which decide to list in America. Top companies currently listed here include: Infosys Technologies, Rediff.com, and Wipro. For now, as an investor interested in Indian opportunities, the best idea might just be to get a grasp of the top investments available there and keep an eye out for their listings here in the US. A great place to find information on Indian stocks and general trends in the Indian markets check out: http://www.indian-share-tips.blogspot.com/.