Most investors, when looking to emerging markets tend to focus their attention on broad-based funds such as the iShares MSCI Emerging Markets Index (NYSE:EEM) or the fast moving BRIC countries, with a vehicle such as SPDR S&P BRIC 40 (NYSE:BIK). However, some of the more exciting opportunities for long term investors may lie within other fast growing economies within the developing world. (A little international flavor spices up any portfolio. Check out Investing Beyond Your Borders.)

IN PICTURES: 20 Lazy Ways To Save Money

Israel as an Investment Destination
Despite having only 7.6 million residents and a land mass the size of New Jersey, Israel has truly emerged as premier investment destination. As the nation moved away from its beginning agriculture-based economy to more of a high tech one, its people have flourished. So much so, that index provider MSCI Barra (NYSE:MXB) has recently reclassified the nation from "emerging" to "developed". Putting Israel in the same boat with nations such as the United States, France and Canada. Investors do have something to cheer about besides the nation's recent reclassification.

The Great Tech Miracle
Due to the nations lack of oil reserves, Israel has been forced to fund its $207 billion GDP via alternative means. The great tech miracle has launched Israel into the forefront of several high technology industries including pharmaceuticals, aerospace, information technology and software. Exports of this sector have grown by nearly 8.5% annually. As an importer of raw materials, Israel has been successful in turning these raw materials into higher margined finished goods for exports.

The nation currently runs an account surplus and cut expenditures during the economic downtown. In addition, Israel's banking sector offers none of the sub-prime risks that western banks experienced and are highly capitalized. The nation also receives strong investment grade credit ratings from Fitch, S&P and Moody's. (For more about these agencies and their function in the market, check out A Brief History Of Credit Rating Agencies.)

While Israel certainly has investment merit, is important to recognize some of the risks inherent in the region. Political tensions do exist as evident from the recent sinking of ship bound for Gaza. Israel has the potential to lose Turkey (NYSE:TUR) as an ally over the incident. In addition, Jewish-Islamic pressures within the Middle East are well documented.

Adding the High Tech Leader
Despite the risks, Israel is a worthwhile investment for the long term. The easiest way to add the tiny nation to a portfolio is through the iShares MSCI Israel Index (NYSE:EIS). The exchange traded fund follows 84 different Israeli companies and charges 0.66%. Also available is the Aberdeen Israel Fund (NYSE:ISL), a closed-end fund trading at a 10% discount to its net asset value. Additionally, many Israeli stocks trade on American exchanges are available for U.S. investors directly.

Israeli Picks
There's much debate over what wireless architecture will work best, WIMAX is one possible solution and Alvarion (Nasdaq:ALVR) is one of the global leaders in the technology. The stock has fallen lately as spending on infrastructure is down, the company does make an interesting long term pick as communication needs grow in the emerging world.

Odds are, if you have ever shopped online, you've used Check Point Software's (Nasdaq:CHKP) systems for checkout. The company's security software is quickly becoming the standard for many websites. Shares can be had for a forward P/E of 12. Israel's Audio Codes (Nasdaq:AUDC) also provides security software focusing on voice over internet protocols (VoIP).

Bottom Line
Israel represents a unique investment opportunity. The combination of strong financials and a high tech economy makes it distinctive choice for investors wanting to move outside the BRIC nations. While it is not without risks, the nation should continue to prosper for years to come. (Emerging markets like India are fast becoming engines for future growth. Find out how to get in on the ground floor. Check out The Indian Stock Market 101.)

Related Articles
  1. Mutual Funds & ETFs

    7 Best ETF Trading Strategies for Beginners

    Exchange-traded funds are ideal instruments for beginning traders and investors. Learn the seven best strategies for trading ETFs.
  2. Mutual Funds & ETFs

    ETF Analysis: SPDR Dow Jones International RelEst

    Learn how the SPDR Dow Jones International Real Estate exchange-traded fund (ETF) is managed and for whom the ETF is most appropriate.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares JPMorgan USD Emerg Markets Bond

    Learn about the iShares JPMorgan USD Emerging Markets Bond fund, which invests in bonds of sovereign and quasi-sovereign entities from emerging markets.
  4. Active Trading Fundamentals

    How Hedge Funds Front-Run Index Funds to Profit

    Understand what front running is, and learn how hedge funds use this investing strategy to profit from the anticipated stock buys of index funds.
  5. Mutual Funds & ETFs

    ETN Analysis: Rogers Intl Commodity Energy Total Return

    Learn more about the Rogers International Commodity Total Return, which is an exchange-traded note that tracks a broad index of commodity futures.
  6. Mutual Funds & ETFs

    ETF Analysis: Schwab US Large-Cap

    Discover how the Schwab U.S. Large-Cap exchange-traded fund is managed, the index it tracks and the investors for which it is most appropriate.
  7. Investing Basics

    Explaining Trade Liberalization

    Trade liberalization is the process of removing or reducing obstacles that impede the exchange of goods and services between nations.
  8. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  9. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Nasdaq Biotech

    Obtain information about an ETF offerings that provides leveraged exposure to the biotechnology industry, the ProShares UltraPro Nasdaq Biotech Fund.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Europe Financials

    Learn about the iShares MSCI Europe Financials fund, which invests in numerous European financial industries, such as banks, insurance and real estate.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Brazil, Russia, India And China ...

    An acronym for the economies of Brazil, Russia, India and China ...
  4. Optimal Currency Area

    The geographic area in which a single currency would create the ...
  5. European Sovereign Debt Crisis

    A period of time in which several European countries faced the ...
  6. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!