Profit From the Fantastic Four

Brazil is rapidly becoming a middle-class country, so many of the best investment opportunities are in companies that cater to the domestic population of nearly 200 million. Brazilians historically haven't borrowed much, but lending is surging for mortgages, automobiles and other consumer goodies. Jeff Urbina, co-manager of William Blair Emerging Markets Growth, thinks highly of Banco Itau ( ITU) for its operational prowess.

Indeed, emerging-markets fund managers, such as David Semple, of Van Eck Emerging Markets, see better value in smaller companies that concentrate on domestic business and are less tied to the global commodity cycle. The best way to gain entry into the domestic economy is through a diversified fund.

T. Rowe Price Latin America ( PRLAX) has a fine long-term record, and nearly 70% of its portfolio is in Brazilian stocks. London-based manager Gonzalo Pangaro says he's focusing on Brazilian consumers by investing in department-store chains, credit-card processors and real estate companies. He likes financials such as Itau and Banco Bradesco ( BBD), which are expanding their loan books 20% to 25% a year. One of his favorite exporters is Perdigao ( PDA), a big poultry producer.

If you prefer investing through low-cost, unmanaged exchange-traded funds, you can buy Brazil through iShares MSCI Brazil Index ( EWZ).

The Russian bear awakens

Economic progress in Brazil is impressive, but Russia may win the award for most dramatic turnaround. Consider this: A decade ago, in 1998, the Russian economy collapsed. The stock market and ruble tanked, and the Russian government defaulted on both foreign and domestic debt.

Flash forward to today. Russia is running trade and budget surpluses; the country's foreign-exchange reserves have multiplied 25-fold this decade, to $500 billion, third-largest in the world. The ruble is steadily gaining in value against the dollar, and the size of the Russian economy (in U.S. dollars) has mushroomed sevenfold since 1998. The entire country is like a boomtown, says John Connor, whose Third Millennium Russia fund has returned an annualized 34% since its inception in October 1998.

As the world's largest exporter of natural resources, Russia is riding the bull run in commodities. The vast land is blessed with huge reserves of oil and gas, nickel, platinum, and titanium.

But the government of prime minister Vladimir Putin deserves much of the credit for managing the windfall adroitly. Its fiscal and monetary policies have been prudent, and the government has kept inflation in check. It's investing surpluses from commodities in infrastructure, health care, housing and education. Confidence in the currency has encouraged Russians to put their savings into rubles and to return to the banking system.

This will mark the ninth consecutive year of rapid economic growth. Russians' incomes are surging more than 20% annually, the wealth is being widely distributed, and the middle class is burgeoning. No wonder Putin -- reviled abroad for limiting the freedom of his country's press and trampling on other rights common in democracies -- is so popular at home.

London-based Julian Mayo has invested in Russia since 1996 and also likes what he sees. In fact, Mayo, who co-manages two emerging-markets funds for U.S. Global, says Russia is currently his favorite market among the BRICs. He likes the inflation hedge that Russian commodity producers provide. And he's also attracted to the surge in domestic demand for consumer goods and low levels of consumer and government indebtedness.

You can invest in Russia through Third Millennium, but the fund charges a sales fee. If you want to keep costs down, try the closed-end fund Templeton Russia and East European ( TRF), managed by Mark Mobius, or the ETF Market Vectors Russia ( RSX). Mobius, who says Russia is becoming a safer place to invest, is finding stocks that tap into local-consumer spending, such as supermarket chains and fruit-juice makers. In mid June, Templeton Russia traded at a 3% discount to the value of its assets.