It seems that all of the nations around the world are facing sovereign credit ratings downgrades or warnings of downgrades. After the United States lost its prized “AAA” rating, the threat of downgrades hangs over all of Europe. Before assuming that the whole financial system is going down the drain with Europe, it is important to realize that some key developing nations are still growing strongly and have better credit metrics. More than 15 nations may even see one or more of the top three ratings agencies upgrade their sovereign credit ratings.

24/7 Wall St. has focused on the ratings with a “positive” outlook from Standard & Poor’s, Moody’s and/or Fitch with a bias towards nations that investors can easily invest in via ADR shares, closed-end funds, and exchange-traded funds (ETFs). The featured nations that may be upgraded in 2012 are Brazil, Chile, China (with Hong Kong), Indonesia, Peru, Russia, South Korea, and Turkey.

Read: Nations Set For Credit Ratings Beyond Upgrades, Beyond The Euro Crisis

There is another slew of countries for which S&P has a “positive” outlook stance: Azerbaijan, Bolivia, Ecuador, Honduras, Latvia, Panama, and Sri Lanka. Unfortunately, these nations are almost impossible for Americans to invest in due to their size, the small number of public companies, and a lack of ETFs or mutual funds covering them.

The 24/7 Wall St. list is presented alphabetically and features relevant ratings. Also included are economic details and important developments to consider. Lastly, we have provided a list of the key closed-end funds, ETFs, and ADRs specific to each nation. Population estimates and purchasing power parity GDP for 2010 were taken from the CIA World Factbook.

BRAZIL: population 203 million; GDP $2.17 trillion

Brazil is already at “investment grade.”  Moody’s carries a “Baa2” rating with a “positive” outlook, but S&P and Fitch both carry “BBB” ratings with “stable” outlooks.  It may be risky to count on further upgrades as Brazil has experienced reduced growth due to global uncertainty.  Fitch sees slower growth in 2012 of about 3.2% for GDP and the counter-cyclical policy moves of late may be tempered due to a weak global economy. Soccer’s 2014 World Cup and the 2016 Olympics are both expected to provide growth catalysts for the country.  Many Brazilian stocks have come back down to more reasonable prices of late and the BOVESPA is down close to 20% in 2011.

ETFs: iShares MSCI Brazil Index (NYSE: EWZ), Market Vectors Brazil Small-Cap ETF (NYSE: BRF), and WisdomTree Dreyfus Brazilian Real (NYSE: BZF)

ADRs: Petroleo Brasileiro (NYSE: PBR), a.k.a. PetroBras, as the oil giant, Vale S.A. (NYSE: VALE) as the giant in base metals, Banco Bradesco S.A. (NYSE: BBD) in banking, BRF – Brasil Foods S.A. (NYSE: BRFS) in food, GOL Linhas (NYSE: GOL) as an airline, Embraer SA (NYSE: ERJ) in aircraft manufacturing, and finally Cosan Ltd. (NYSE: CZZ) in food, agriculture, and energy (ethanol).

Also read: Nations That May Lose AAA Ratings – And Those That Won’t

CHILE: population 16.8 million; GDP $257.9 billion

Chile is rated “A+” by S&P and its last change was to “positive outlook” in December of 2010.  Moody’s rates the nation a bit higher at “Aa3” with a “stable” outlook; Fitch carries an “A+” rating but a “stable” outlook.  Chile’s central bank has recently lowered expectations for 2012 GDP growth and inflation but Goldman Sachs said the bank has also now set the stage for rate cuts starting in 2012 due to signs that economic activity is decelerating. The central bank has also noted a tighter foreign financing climate. Chilean shares are down more than 25% in 2011.

ETFs: iShares MSCI Chile Investable Market Index (NYSE: ECH)

FUNDs: Aberdeen Chile Fund, Inc. (NYSE: CH)

ADRs: Banco de Chile (NYSE: BCH) in banking, Banco Santander-Chile (NYSE: SAN), LAN Airlines S.A. (NYSE: LFL) in passenger and cargo air transportation services, and Chemical & Mining Co. of Chile Inc. (NYSE: SQM), a.k.a. Sociedad Quimica y Minera S.A., in the production and sale of fertilizers and specialty chemicals.

CHINA & HONG KONG: population 1.3 billion; GDP $10.09 trillion

China is currently rated “Aa3” with a “positive” outlook by Moody’s, and S&P has a “AA-” rating with a “stable” outlook. Hong Kong’s debt is currently rated by Moody’s as “Aa1” with a “positive” outlook and is already “AAA” at S&P.  Imagine having GDP growth of 8% considered a disappointment! China is often referred to as the growth engine of the world, and also as the world’s manufacturer.  Still, its stocks have been brutally pounded, with the key Shanghai Composite Index down by one-third from the highs seen in April. Many American investors now have dire mistrust of Chinese accounting and accountability standards due to multiple implosions of actively traded ADRs and reverse merger stocks listed in the U.S. Because of the number of funds and ETFs, compounded by the accounting woes in many ADRs, we have not included any individual Chinese companies.

ETFs: iShares FTSE China 25 Index Fund (NYSE: FXI), SPDR S&P China (NYSE: GXC), Market Vectors China ETF (NYSE: PEK), and iShares MSCI Hong Kong Index (NYSE: EWH)

FUNDs: Templeton Dragon Fund Inc. (NYSE: TDF) and The China Fund, Inc. (NYSE: CHN)

Also Read: The 13 Countries That Own the World’s Gold

INDONESIA: population 245 million; GDP $1.03 trillion

Indonesia has a “BB+” rating from S&P and a “positive”  outlook since April of 2011.  Moody’s raised Indonesia to “Ba1” with a “stable” outlook.  What is so important here is that one single upgrade from either agency will make Indonesian sovereign paper “investment grade.”  Fitch already carries an “investment grade” rating at “BBB-” with a “positive” outlook. One new driver for 2012 is the expectation that domestic and foreign oil and gas companies will invest somewhere close to $24 billion in upstream oil and gas projects. Xinhua News recently reported that Indonesia’s economy will likely survive the global economic crisis.  The central bank is forecasting 6.5% GDP growth for 2012. Private sector forecasts are not quite so strong but still come in above 6%.  While stocks were at one point down almost 30% from the year’s highs, the broader market is now effectively flat and that is actually a success for an emerging market in 2011.

ETFs: Market Vectors Indonesia Index ETF (NYSE: IDX) and iShares MSCI Indonesia Investable Market Index (NYSE: EIDO)

FUNDs: Aberdeen Indonesia Fund, Inc. (NYSE: IF)

ADRs: P.T. Telekomunikasi Indonesia (NYSE: TLK)


PERU: population 29.2 million; GDP $275.7 billion

Peru is rated by Moody’s as “Baa3” with a “positive” outlook.  If upgraded, it will move off the lowest possible rating for “investment grade” sovereigns.  S&P rates Peru as “BBB” (one-notch off the lowest investment grade) and has carried a “stable” outlook status since August.  Peru is a market that many U.S. investors overlook.  It recently reported 5.1% GDP growth and that was considered a disappointment due to a weaker manufacturing climate.  Strong private consumption and public spending are keeping the growth up and the central bank already has some economic stimulus in place.  Shares have pulled back in Peru by about 30% from the start of 2011.

ETFs: iShares MSCI All Peru Capped Index (NYSE: EPU)

ADRs: Credicorp Ltd. (NYSE: BAP) in financial services and Compania Mina Buenaventura, S.A. (NYSE: BVN) in precious metals.  The big hit is Southern Copper Corporation (NYSE: SCCO), based in Phoenix, Arizona but the $24 billion company is involved in mining, exploring, smelting, and refining copper ores in Peru, Mexico, and Chile.

RUSSIA: population 139 million; GDP $2.223 trillion

Russia is rated by Fitch as “BBB” with a “positive” outlook, which gives the nation an “investment grade” status one-notch above the lowest of the prized ratings. It is also “BBB”-rated by S&P with a “stable” outlook, and rated “Baa1” by Moody’s, again with a “stable” outlook.  Russia may seem smaller than some investors recall because the former members of the U.S.S.R. are tallied up individually now, but Russia has ambitions of becoming a much larger economic power.  It is very rich in natural resources and its central bank is continuing to accumulate gold and hard assets to maintain the value of its currency.  Russia has also recently been formally admitted to the World Trade Organization. The IMF has lowered Russia’s GDP growth outlook in 2011 from 4.3% to 4.1%. Russia’s economic ministry also put growth at 4.1%.  Russian stocks have lost nearly one-third of their value from the highs earlier in 2011.

ETFs: Market Vectors Russia ETF (NYSE: RSX), SPDR S&P Russia (NYSE: RBL), iShares MSCI Russia Capped Index (NYSE: ERUS), and Market Vectors Russia Small-Cap ETF (NYSE: RSXJ)

FUNDs: Templeton Russia and East European Fund Inc. (NYSE: TRF), Central Europe & Russia Fund Inc. (NYSE: CEE)

ADRs: Mobile Telesystems OJSC (NYSE: MBT) and VimpelCom Ltd. (NYSE: VIP) in telecom and Mechel OAO (NYSE: MTL) in mining and steel.

Also Read: Even More DJIA Dividend Hikes Coming Soon

SOUTH KOREA: population 48.7 million; GDP $1.46 trillion

South Korea (The Republic of Korea) is already “investment grade” at all agencies, but Fitch’s “A+” rating comes with a “positive” outlook.  That is higher than the “A” rating from S&P, which has had a”stable” outlook since 2005.  The recent death of North Korea’s Kim Jong-il has overshadowed any other positive developments in South Korea. If there is a reintegration of North and South Korea, we’ll have to go back to the playbook from when East and West Germany were unified. The issue of succession in North Korea brings up perhaps the greatest set of unknowns for South Korea’s ratings.  Korean stock prices are down nearly 30% from the year’s highs.

ETFs: iShares MSCI South Korea Index (NYSE: EWY) and IQ South Korea Small Cap ETF (NYSE: SKOR)

FUNDs: The Korea Fund Inc. (NYSE: KF) and the Korea Equity Fund Inc. (NYSE: KEF)

ADRs: POSCO (NYSE: PKX) as the Korean steel giant, Korea Electric Power Corp. (NYSE: KEP) as the utility, and SK Telecom Co. Ltd. (NYSE: SKM) in telecom.

TURKEY: population 78.8 million; GDP $960.5 billion

Turkey is rated by S&P as “BB” and has had a “positive” outlook since February of 2010.  Moody’s has a similar “Ba2” rating and “positive” outlook.  That requires two notches of upgrades for an “investment-grade” rating.  Fitch has a “BB+” rating — just one notch from “investment grade” — with a “positive” outlook.  Turkey’s ambition of getting into the euro is all but history now. With a young population and high unemployment, Turkey’s future “investment grade” status may take another round of global economic recovery and better internal governance. Recent lira weakness has been a concern as interest rates and inflation have been higher than across Europe. GDP growth was recently running above 8% on an annualized basis but is expected to be much lower amid tighter credit in 2012. Turkish equity prices were at one point down more than 40% from mid-2011 highs.

ETFs: iShares MSCI Turkey Investable Market Index (NYSE: TUR)

FUNDs: Turkish Investment Fund Inc. (NYSE: TKF)

ADRs: Turkcell Iletisim Hizmetleri AS (NYSE: TKC)

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