Every investor knows diversification is crucial in order to maintain a successful portfolio. And in times like these, with the U.S. economy on a sluggish growth path, it really pays to invest in foreign markets.

For a while now, emerging economies such as Brazil, Russia, India and China have all been catching the attention of investors, and for good reason. But it pays to be looking for the next big growth story, too.

#-ad_banner-#And right now, my eyes are on one country with a particularly bullish outlook: Chile.

Chile’s economy may be overshadowed by all the hype surrounding its Latin American neighbor, Brazil. But the country has a stable, prosperous economy and is becoming a leader in competitiveness, income per capita and growth in the region. It also has one of Standard & Poor’s best credit ratings in Latin America, an “A+”. [Also see “These 4 Stocks May be Safer than U.S. Treasuries“]

But when Wall Street thinks of Chile, it thinks of one word — copper. Indeed, Chile is the world’s largest producer and exporter of the red industrial metal, producing about a third of the world’s supply.

But the current struggling economy in the United States, debt troubles in Europe and fears of a sharp economic slowdown in China — the world’s largest consumer of copper — caused copper prices to plummet 30% to their lowest level in more than a year, now trading roughly at $7,500 per ton (or $3.46 a pound, as you can see in the chart below).

 

Needless to say, Chile’s stock market felt this plunge. The result was a major selloff, with Chilean shares down 16% year-to-date.

But there is more to Chile’s economy than copper. In fact, I think now is the perfect time for savvy investors to tap into this stable and fast-growing emerging market at value prices. Here are four reasons Chilean stocks are undeniably a “buy”…

1. There’s a lot more to the country’s economy and stock market than copper. In fact, there is not a single copper mining company listed on the Santiago blue-chip IPSA index. To be sure, the red metal accounts for more than 50% of exports and 20% of the nation’s gross domestic product (GDP), but it employs only a little more than 200,000 people out of a population of about 17 million.

2. Chile’s economy is resilient. It has endured lower copper prices and a devastating earthquake in early 2010. Yet the economy grew by more than 5% last year and in excess of 8% in the first half of 2011. The International Monetary Fund predicts Chile’s economy will grow 6.5% this year and 4.7% next year, despite the poor outlook for copper.

3. Chilean citizens are educated, involved and on the rise. Some of the headlines coming out of Chile may sound alarming at first glance. Some Chileans have taken to the streets, demanding better living conditions and more affordable education. Despite these protests, Chileans are still optimistic about their country, however. According to regional pollster Latinobarometro, 44% of Chileans think their democracy works well, twice the Latin America average.

And for good reason. Poverty rates have improved drastically, practically greater any of its Latin American neighbors. Chile’s unemployment rate is near record lows at 7.5%, and wages are climbing at a rate of 3% a year (after inflation is factored in). As employment rates increase, Chileans will get more purchasing power, which will likely invigorate the economy even more.

4. The country has almost no sovereign debt. Chile has built up a sovereign wealth fund valued at more than $20 billion, while its central bank has more than $37 billion in foreign exchange reserves.

These are just some of the reasons why Chile was able to issue a $1 billion 10-year bond at a rate of 3.4% in September. This rate was the lowest interest rate that any Latin American borrower had ever achieved. It is also why Chile’s credit default swaps are trading lower than France’s.

Another factor to consider when looking at Chile’s economy is the strong monetary policy of its central bank. During the 2008-2009 financial crisis, Chile’s central bank slashed domestic interest rates to 0.5%. It was also the only South American central bank to engage in a quantitative easing (QE) plan, similar to the Federal Reserve in the United States. The QE was intended to increase the money supply in the economy by purchasing securities, usually government bonds, from the market. Subsequently, the central bank quickly raised interest rates up to 5.25%. This now leaves it with plenty of room to cut rates in case the country needs to stimulate the economy again.

Chile also ranked well on a recent corruption perceptions index by Transparency International, a nonprofit organization for fighting against institutional corruption. Chile came in at 21 out of 178 countries, ahead of even the United States, which was one spot lower.

Risks to consider: As the world’s largest consumer of copper, China’s economic condition is a major influence on Chile’s copper industry. If China’s economic growth slows, which I think is unlikely, then Chile’s economy could be negatively affected. In addition, the state-run copper company Codelco injects about $19 billion in the economy, or 25% of government revenue. Therefore, if copper prices collapse, then taxes will likely increase, government spending will shrink, and individual spending power will shrink.

Action to Take –> Investors could buy individual Chilean stocks, such as the 12 Chilean stocks currently listed on the New York Stock Exchange. But because of the country’s strong economic fundamentals, I think the best bet is to gain a broader exposure to the Chilean economy through the purchase of an exchange-traded funds (ETF) such as the iShares MSCI Chile Index Fund (NYSE: ECH), which is near its 52-week low, trading at roughly $60.

Investors wanting to venture into this appealing international market shouldn’t wait. Chilean stocks are a “buy” right now — before everyone else starts to take interest..