The best performing global stock markets in 2010 were emerging and frontier markets whose returns beat markets in the United States and other developed economies by a wide margin.
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The Winners
The best performing international stock market in 2010 was Sri Lanka, which returned 96% during the year. The Colombo Stock Exchange has been around in one form or another for more than 100 years, although only adopted a trading floor and open outcry system in 1984.

The number-two stock market was in Bangladesh, which returned 83% in 2010. Also on the list of best performing stock markets in 2010 were several Eastern European countries, including Estonia, which gained 73%, and Ukraine and Lithuania, which returned 70% and 56%, respectively. South America also had a couple of winners in 2010, with Peru up by 65% and Argentina returning 52%.

BRIC Laggards
One interesting point about the returns of non-U.S. stock markets is that Brazil, Russia, India and China, known as the BRIC countries, which are typically the most hyped of all foreign markets by pundits, turned in a mixed performance in 2010.

Russia was the leader and returned 23% in 2010, followed by India at 17% and Brazil was almost flat at a 1% return. China was the laggard and saw its market fall by 14% in 2010.

How to Play It
Investors can invest in some of these markets directly but the cost and liquidity issues associated with direct investments can be burdensome and reduce returns. Another way is to buy exchange traded funds (ETF) that invest in non U.S. stocks.

The Vanguard Emerging Markets Stock ETF (NYSE:VWO) invests in many emerging markets across the globe. This ETF is broad based and diversified with the ten largest stocks representing only 13.6% of the total assets.

The iShares MSCI Emerging Markets Index ETF (NYSE:EEM) is another vehicle to play a broad base of emerging markets. Stocks from China, Brazil and South Korea make up 46% of the assets of this ETF.

Investors that want to drill down deeper by region might want to consider the S&P Emerging Middle East & Africa SPDR (NYSE:GAF), which invests in stocks in countries in that region. This ETF is heavily weighted towards South Africa, with 88% of the assets in South African stocks.

The Guggenheim Frontier Markets ETF (NYSE:FRN) invests in smaller and less developed markets and has a 33% weighting in Chile and a 14% weighting in Colombia, as of Sept 30, 2010. The fund also has investments in Nigeria, Lebanon and Kazakhstan.

The Bottom Line
The best equity market returns in 2010 were from international stock markets outside the United States. Many of these frontier and emerging markets beat the more developed stock markets by a wide margin. (For related reading, take a look at Re-evaluating Emerging Markets.)

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