Is anybody else weary of the sheer volatility from the U.S. stock market? Just this past week, renewed fears of a double-dip recession hijacked reason and level-headedness again, pulling the market down as a result. Actual valuations, present or expected, seem to have little bearing any more. There is a way around it though, and it's one that's apt to be profitable as well.

IN PICTURES: 4 Biggest Investor Errors

The Reason You Feel Seasick
Just to put things in perspective, check out the major (5% or more) moves from peaks to troughs, and back, that we've seen from the SPDR S&P 500 ETF (NYSE:SPY) this year alone.

Date Moves
December 31 - January 19 +3.3% (the uptrend started before 12/31)
January 19 - February 5 -9.2%
February 5 - April 26 +16.8%
April 26 - May 6 -14.0%
May 6 - May 13 +12.1%
May 13 - May 25 -11.3%
May 25 - June 3 +6.4%
June 3 - June 8 -5.8%
June 8 - June 21 +8.2%
June 21 - July 1 -10.7%
July 1 - August 9 +11.9%
August 9 - August 20 -5.7% (and still counting)

That's a whopping 115.4% points worth of total "travel," and what do we have to show for it? A mere year-to-date loss of 3.9%. It would have been slightly less irritating if the market were at least pretty deep in the hole, as it would have at least been trade-worthy. This is just sheer indecision, largely fueled by a hysterics-loving media.

The thing is, we're starting to see a divergence between U.S. equities and the rest of the world's equities. Overseas, foreign stocks are not only more reflective of their underlying companies, but the further-underlying economics are actually supporting sustained growth. (Read about profiting from divergence trades in Divergence: The Trade Most Profitable.)

Foreign Markets, by the Numbers
China's and Japan's economies may be slowing down, but you don't have to look too far past either to find neighbors that are accelerating. Indonesia's economy, for instance, grew by nearly 6% in the first half of 2010. South Korea's grew at a clip of 7.6%. The half-year numbers aren't out yet for Malaysian and Thailand, but their economies grew by 10% and 12% respectively, in the first quarter. Even a number half as strong would still be impressive.

Not surprisingly, U.S.-listed Indonesian stocks rank in the top third of all nationalities when it comes to performance over the last six months. It's not just Indonesian stocks on a roll though. Three of iShares' top six performing ETFS at the end of the first half of the year are foreign ETFs. The iShares Thailand (investable market) Fund (NYSE:THD) is up 19.5% since January, and is still on a roll. The iShares Chile (investable market) Fund (NYSE:ECH) is up 15.7% for the first half of 2010, while the Malaysia Index Fund (NYSE:EWM) is ahead by 15.1%.

See the cause/effect correlation starting to peak through?

To be clear, those three funds aren't among the top six of just iShares' international ETFs - they're the top performers among ALL the iShares ETFs.

Other Overseas Picks of the Litter
While exchange-traded funds are the easy way to take advantage of this growing divergence between the United States' market and the rest if the world's, ADRs may offer an even better risk-versus-reward profile.

The strong numbers above focused on smaller Asian countries. As such, obviously some stocks from those particular countries have made for prime holdings. For instance, South Korean telecom stock KT Corp. (NYSE:KT) is up more than 18% for the year so far, but with a forward-looking P/E of just above 7.0, there's still plenty of room for price appreciation.

No international portfolio would be complete, however, without some South American exposure.

With that in mind, one might look for something that combines growth opportunities with a relatively stable business. Brazil's utility stock CPFL Energia (NYSE:CPL) is one savvy way of doing that.

CPFL improved earnings by 82% on a year-over-year last quarter. The underlying reason, however, is the compelling part of the story. Energy demand in Brazil is soaring, as the country is coming out if its recession in much better shape than the U.S. is. And, while there's always the possibility that a U.S. double-dip could reach that far south, the current divergence trends suggest that's unlikely.

The Bottom Line
In any case, the message is clear - sailing is smoother overseas, even if it's only volatile here for the wrong reasons. (For related reading, take a look at Go International With Foreign Index Funds.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    The 4 Best Buy-and-Hold ETFs

    Explore detailed analyses of the top buy-and-hold exchange traded funds, and learn about their characteristics, statistics and suitability.
  2. Chart Advisor

    Bumpy Roads Ahead In Transportation

    Investors are keeping an eye on the transportation industry. We'll take a look at the trend direction and how to trade it.
  3. Investing

    How ETFs May Save You Thousands

    Being vigilant about the amount you pay and what you get for is important, but adding ETFs into the investment mix fits well with a value-seeking nature.
  4. Mutual Funds & ETFs

    3 Fixed Income ETFs in the Mining Sector

    Learn about the top three metals and mining exchange-traded funds (ETFs), and explore analyses of their characteristics and how investors can benefit from these ETFs.
  5. Chart Advisor

    Agriculture Commodities Are In The Bear's Sights

    Agriculture stocks have experienced strong moves higher over recent weeks, but chart patterns on sugar, corn and wheat are suggesting the moves could be short lived.
  6. Investing News

    Top Tips for Diversifying with Mutual Funds

    Are mutual funds becoming obsolete? If they have something to offer, which funds should you consider for diversification?
  7. Professionals

    Top Stocks to Short, Go Long On to Beat the Market

    A long/short portfolio can help weather a variety of market scenarios. Here's how to put one together.
  8. Mutual Funds & ETFs

    Top 4 Asia-Pacific ETFs

    Learn about four of the best-performing exchange-traded funds, or ETFs, that offer investors exposure to the Asia-Pacific region.
  9. Mutual Funds & ETFs

    Top 3 Japanese Bond ETFs

    Learn about the top three exchange-traded funds (ETFs) that invest in sovereign and corporate bonds issued by developed countries, including Japan.
  10. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  1. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>

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!