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.)

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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.)

Risks
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.)

Tickers in this Article: EIS, ISL, ALVR, CHKP, AUDC, TUR, BIK, EEM, MXB

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