If the past decade was one for the BRICs (Brazil, Russia, India and China), then is this the decade of the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa)? That was a notion I explored last summer in this article.

Now, it’s time to take a fresh look at these markets. Are they managing to beat the BRICs at their own game? And which of these markets looks like the best bargain in the next year and the next decade?

A quick look at the numbers reveals the CIVETS have underperformed the BRICs and the United States since August 30, 2010 (which coincidentally marks the beginning of a robust upward move in the S&P 500 that would extend into the winter).



The CIVETS did have a pair of standouts. Indonesia continues to benefit from a reputation as being “the new China,” with a sizable population, abundant natural resources and an increasingly business-friendly set of government policies. South Africa is benefiting from the recent commodities boom (thanks to its exposure to gold) and is getting a lift from being the best way to invest in the African continent, which is getting increasing respect in global investment circles.

On the flip side, Egypt’s social upheaval can explain the country’s underperformance. Tourism has slowed to a crawl and the dominant companies that make up the Market Vectors Egypt Index ETF (NYSE Arca: EGPT) come under pressure from populist movements.

#-ad_banner-#Inflation problems, yet real promise in Vietnam
The only other CIVET to finish the last 10 months in the red: Vietnam, which has been struggling to control inflation, inhibit corruption and foster free enterprise. Vietnam’s leaders have not proven adept at encouraging capitalism in a centrally-planned economy as China has. Yet as I have written in the past, Vietnam has made considerable strides past decade, and with a large population and an ample base of resources, it’s too soon to close the chapter on this country. Indeed, we continue to read of media reports that steadily rising wages in China are forcing multi-nationals to relocate to less expensive locales, with Vietnam often cited as a prime destination.

It’s the fight to control inflation that will hold the key for investors. Prices are rising at a 20% annual clip, leading the Vietnamese Central bank to boost interest rates and devalue the country’s currency, the dong. Analysts at Goldman Sachs think “inflation is likely to remain at uncomfortably high levels for the next six months before turning around in the beginning of next year.” Those analysts predict the economy will grow 5.6% this year, which may seem impressive, but will need to move up to the 7% or 8% mark in 2012 before investors to pile back in.

As a recap, Indonesia and Vietnam hold a great deal of long-term promise. The Indonesian economy and stock market are so hot right now, though, you may want to wait for the inevitable hiccup these types of markets usually have to endure.

The real play for investors right now
Yet if you simply want solid exposure to an entire region through a particular country, then Turkey and Brazil are really the names to own. Each country shares four fundamental traits:
 

• Sizable populations (Brazil: 190 million people, Turkey, 73 million people) with fast-growing consumer classes
   
• Maturing governments that are fostering environments favorable to business in general and exporters in particular
   
• Proximity to regional trade blocs (Chile, Argentina, Colombia, etc. and the Middle East, respectively)
   
• A belated but robust spending spree on infrastructure to boost access to rail freight, sea ports and air cargo.

To be sure, each of these countries still has sizable hurdles to overcome. Turkey’s eastern region remains under-developed, which is leading to widening income gaps and the potential for social instability. Brazil also has demographic challenges. Its skilled workforce has made rapid improvements in income and lifestyle, while many unskilled Brazilians remain impoverished. Both these countries need continued strong economic improvements for the “rising tide to lift all boats.”

Action to Take –> Perhaps the most surprising result of this analysis is the relative strength shown by the U.S. markets. The 28% upward move in the S&P 500 comes at a time when the United States faces very daunting challenges. [Read: “5 Economic Crises That Could Derail Your Portfolio”] The fact countries such as Turkey and Brazil have not performed nearly as well in the last 10 months should push you to rotate your exposure to these countries, as they arguably possess much brighter long-term growth prospects.

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