The 4 Worst Overseas Markets of 2012


Despite pressures from Europe's recession, the fiscal-cliff drama, and recovery blues, 2012 was a great year for many stock markets around the world. The Dow Jones Industrial Average managed gains of nearly 10% last year, and as I explored yesterday, many international markets -- from Greece to Turkey to Germany -- easily topped that number.

But things weren't good everywhere last year, and for some international investors, it's a good thing 2012 is over. Europe's ongoing fiscal crisis hammered the worst performers of last year, and some world markets just couldn't get out of a rut. So which were the four worst international markets to invest in last year?

Spain's year of horrors
It shouldn't be surprising that Spain made the list. Despite Greece's place among the top world markets of last year, Spain's nightmarish 2012 was something for the country to forget. Between riots on the streets, rising nationalist sentiment in the region of Catalonia, and the nation's mounting pile of debt, Spain did not lay out a path to recovery last year.

Spain's IBEX-35 index didn't perform horribly with full-year losses of just more than 6%, but you could have found better returns in virtually any other first-world market around the globe. Some Spanish stocks, such as Banco Santander , managed to pull off decent gains for the year, but the country's outlook remains poor.

With unemployment skyrocketing past 25%, youth unemployment now beyond 50%, and major financial institutions like top lender Bankia in trouble -- the bank still has heavy exposure to toxic assets -- there's little hope for a turnaround in the near future in Spain. Bailout packages floated by the eurozone haven't made an impact so far, and Spain's projected GDP contraction for 2013 is a troubling 1.4%, according to estimates from the European Commission.

Stay away from this struggling country's markets in 2013, as it only looks likely to get worst.

Cyprus: 2012's worst market
Speaking of Europe, Spain wasn't actually the worst market in the debt-troubled region. That award goes to the world's outright worst market for 2012: tiny Cyprus.

How badly were investors in Cyprus burned in 2012? The Cyprus Stock Exchange General Index plunged a horrific 58% last year as the island country struggled on the verge of default. The country's attempting to secure a bailout package with the IMF and European nations, but the nation's banks are still heavily exposed to the mess in Greece.

With Cyprus's government banned from international capital markets in 2013, give last year's worst-performing index a wide berth. Taking a risk on a nation as small as Cyprus is bad enough; diving in with the country in such perilous financial straits is far worse.

Russia on the rebound
Further to the east, even members of the BRIC countries didn't give investors much to smile about in 2012.

Russia's MICEX index did pick up modest gains of about 5% last year, which isn't anything to fret about. But investors could have done much better in fellow BRIC nation India's markets, which surged with double-digit gains in 2012. Even the Dow Jones would have been a better option, with nearly double the returns of the MICEX.

Unlike the two previous entries, however, Russia actually has a future for investors this year. The Market Vectors Russia ETF has surged more than 15% over the last six months and still sports a low P/E of just six -- far less than the ETFs of fellow BRIC nations China and Brazil.

Furthermore, the Russian economy should have a respectable 2013. The IMF's World Economic Outlook estimates full-year GDP growth of 3.8% in 2013, higher than in 2012 and much better than its European neighbors to the west. Furthermore, worldwide stimulus measures in top economies could prop up energy prices -- a good thing for a nation reliant on energy production like Russia.

Investing in Russia represented a wasted opportunity in 2012, but it could mean much more in 2013.

The two sides of China
Russia wasn't the only BRIC nation that would have wasted your money on slow growth in 2012. China, the most talked-about economy in the world, didn't do any better for investors.

Granted, Hong Kong's Hang Seng index did quite well and made my list of the five best markets of 2012. Shanghai's SSE Composite Index, however, didn't do well at all in 2012, only managing to eke out a full-year gain of about 3% thanks to a strong December. In the first 11 months of 2012, the SSE Composite lost almost 10%. Any general S&P 500 index fund, such as the SPDR S&P 500 , would have easily beaten that.

The SSE's loss -- in light of the Hang Seng's gains -- show just how volatile investing in China can be. While the nation boasts one of the best growth rates in the world among top economies, the gaudy numbers still hide a developing society in transition and the pressures of the country's tight-lipped government. While some companies, such as Baidu , can emerge as success stories, countless other Chinese stocks have long since been forgotten as failures.

It's no secret that China's slowing economy continues to hurt the nation's growth, but there are opportunities to be had across the Pacific. With a market like China, however, it's of paramount importance that investors do their homework before jumping in.

Who will lag in 2013?
These four markets weren't worth your investment in 2012, but Russia's looking up in the new year -- and although investing in China is a risky venture, there are diamonds in the rough to be found. Who will sink in 2013? While Spain seems no closer to a happy ending, and its larger, debt-plagued cousin Italy could also face trouble, keep an eye on Brazil. The world's second-largest emerging market has suffered from a year-long slowdown, and with analysts lowering GDP estimates for 2013 while raising inflation projections, optimistic investors could be disappointed in what's ahead for Brazil in the next 12 months.

Regardless of your short-term view on the Chinese economy, Baidu, a.k.a. the "Chinese Google," has undoubtedly been an investor hit over the last several years. Is this the Chinese growth stock you've been looking for? Our brand-new premium report breaks down the dominant Chinese search provider's strengths and weaknesses. Just click here to access it now.

The article The 4 Worst Overseas Markets of 2012 originally appeared on

Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends Baidu. The Motley Fool owns shares of Baidu. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.