Wherever you choose to park your cash, you’re joining a growing number of emerging market investors. Last week, such funds attracted $1.7 billion, up from $571.4 million in the previous week, EPFR said.

Chua Kong Ho and David Yong for BusinessWeek report that the MSCI Emerging Markets Index has rallied 73% this year, set for its best annual performance. Developing nations were the 10 best-performing markets this year as stimulus measures from China to Brazil helped bolster a recovery in those nations. [Other Latin American economies that may be worthy.]

Analysts predict that emerging markets are going to continue to be the hottest trend going into 2010, with investors flocking to put their money into Brazil, India, China and even smaller nations. Daniel Tovrov for Mutual Fund Wire reports that money managers are looking past basic emerging markets and developed nations, instead exploring frontier markets. Areas such as Pakistan, Sri Lanka and Pakistan are attracting foreign investment, as their growth potential is greater. A growing number of ETFs have been launched in recent years to represent this increasingly attractive space. [Frontier market ETF options.]

News Center comments that frontier markets could be the sweet reward of 2010 if investors are willing to take larger risks in illiquid, unstable and underdeveloped markets. [Where is the reward within the risk?] If BRIC economies appear saturated and overpriced to you, a frontier market country may be the answer.

Both areas have risks, so put your strategy in place before you invest. We use the 200-day moving average to identify potential long-term uptrends, and we have an exit strategy that includes a stop-loss point. [Read more about trend following here.]

For more stories about emerging markets, visit our emerging markets category. Visit our frontier market category if you’re interested in exploring your options in that area.

• Vanguard Emerging Markets (NYSEArca: VWO): up 73.2% year-to-date

• iShares MSCI Emerging Markets (NYSEArca: EEM): up 68.2% year-to-date

• Claymore BNY/Mellon Frontier Markets (NYSEArca: FRN): up 49.3% year-to-date

• PowerShares MENA Frontier Markets (NYSEArca: PMNA)L up 2.9% year-to-date

Middle East ETFs, such as the SPDR S&P Emerging Middle East & Africa (NYSEArca: GAF), Market Vectors Gulf States (NYSEArca: MES) and WisdomTree Middle East Dividend ETF (NASDAQ: GULF), are a subset of a relatively new class of ETFs called frontier ETFs, remarks Bill Luby for Seeking Alpha. (Dubai worries agitate Middle East).

However, Luby believes that Claymore/BNY Mellon Frontier Markets (NYSEArca: FRN) and PowerShares MENA Frontier Markets (NYSEArca: PMNA) stand out as real diversified frontier plays. (Why frontier markets may be the next big thing).

PMNA is a regional ETF based on the NASDAQ OMX Middle East North Africa Index, with a strong emphasis on the Persian Gulf. Top country allocations include United Arab Emirates (22.6%), Egypt (20.2%) and Kuwait (16.9%). (Four reasons Africa looks appealing).

FRN is a more geographically diversified ETF based on the Bank of New York Mellon New Frontier DR Index. Top country allocations include Chile (28.6%), Poland (15.9%) and Egypt (15.4%).

Additionally, there is the regional frontier ETF Market Vectors Africa (NYSEArca: AFK) and the recently launched single-country ETF Market Vectors Poland (NYSEArca: PLND). (Poland’s growing economy targeted with new ETF). Van Eck is also planning new country-specific ETFs for Egypt and Kuwait.

For frontier markets, the same principles of investing in emerging markets apply: the broader your fund is, the lower your risk. Potential investors should note that frontier markets are considered riskier than developed markets and the multi-country and single-country funds can suffer from low liquidity and high volatility.

Have a strategy for entry and exit in place before you invest to best protect yourself. More information on trend following can be found in The ETF Trend Following Playbook.

For more information on frontier markets, visit our frontier markets category.

Max Chen contributed to this article.

The International Monetary Fund (IMF) stated that Poland’s “limited reliance on exports, flexible exchange rate and contained external and internal balances” allowed the country to avoid a recession this year, reports Meena Thiruvengadam for The Wall Street Journal. The IMF estimated that Poland’s economy may expand 1.1% this year and 1.9% in 2010.

The Organization for Economic Cooperation and Development (OECD) expects the Polish economy to grow 1.4% this year and 2.5% in 2010, according to Warsaw Business Journal. The economy was aided by a sound banking sector, unleveraged private sector, tax cuts as well as  other fiscal measures and infrastructure investments. But activity will remain below potential and the government deficit will greatly distend, says the OECD.

Van Eck announced its intent to launch a Market Vectors Poland ETF (PLND), which is expected to come out later this month, writes Don Dion for TheStreet. The fund will focus on small- and mid-cap companies, with an index made up of stocks that have a market cap of at least $150 million and daily trading averages of a minimum of $1 million. PLND’s most heavily weighted sectors are reported to have allocations of financials at 40%, energy at 14% and industrials at 11% within the fund’s portfolio.

Country-specific ETFs are useful in diversifying an international portfolio, or tracking short-term trends in international economies that would otherwise not be available to an average investor. However, investors should note that narrowly themed and emerging market ETFs have greater volatility.

While there currently isn’t a Poland single-country ETF, there are a selection of emerging market/frontier market ETFs that do have Poland as a large component. These types of region-specific ETFs also have the added benefit of spreading risk between the economic outcomes of countries included in the ETFs. (How to play Poland’s handsome recovery).

For more information on Poland, visit our Poland category.

• Claymore/BNY Mellon Frontier Markets (NYSEArca: FRN): up 55.7% year-to-date; Poland is 15.1%

• SPDR S&P Emerging Europe (NYSEArca: GUR): up 79.1% year-to-date; Poland is 12.2%

• iShares Emerging Markets Eastern Europe Index Fund (NYSEArca: ESR): up 14.7% since inception; Poland is 12.9%

Max Chen contributed to this article.

Over the next three-to-nine months, frontier markets are anticipated to outperform the emerging and developed markets, reports Allen Wan for Bloomberg. The Middle East is in a position to lead the way, since the region has not yet recovered from the global market meltdown, making valuations cheap. The region’s equities are expected to catch up as corporate earnings improve. (Read about five risks to the Middle East economy).

A frontier market is generally a country that is fairly poor. An example is most of Africa. (Four reasons Africa is appealing).

The markets are usually locked up with little or no liquidity, but they can be a good diversification tool for investors. They can be long-term uncorrelated investments and they have enormous potential for growth. There are currently 28 countries listed as frontier markets, reports IS for Intelligent Speculator. (Read about MSCI’s latest review of these markets).

For more stories about frontier markets, visit our frontier market category.

• Claymore/BNY Mellon Frontier Markets (NYSEArca: FRN): up 57.2% year-to-date

• PowerShares MENA Frontier Markets (NYSEArca: PMNA): up 24% year-to-date

• Market Vectors Gulf States (NYSEArca: MES): up 24.9% year-to-date

• WisdomTree Middle East Dividend (NYSEArca: GULF): up 17.4% year-to-date

• SPDR S&P Emerging Middle East & Africa (NYSEArca: GAF): up 49.8% year-to-date

• Market Vectors Africa (NYSEArca: AFK): up 43.5% year-to-date

Frontier markets are not stable enough to be named “emerging,” but these markets do have more potential to deliver higher returns to compensate for the greater risk, remarks Will McClatchy ETFZone. Frontier markets are defined as suffering from extreme volatility, poor trading, corruption, dismal accounting and a tendency to expropriate foreign capital.

What’s so appealing about frontier investments? First, the fastest-growing countries are currently the ones that are “economically delayed.” Second, risk in frontier markets is greatly reduced when added in small amounts to a portfolio.

Some frontier market regions to consider include:

• Africa is a prime example of a frontier market. During the financial debacle, Africa did not suffer as much from the credit crunch since it was lightly leveraged. The continent also has a great amount of natural resources.
• States of the Persian Gulf and Middle East hare developing into emerging status. The oil-rich states are raking in the benefits of increasing wealth, transparency and infrastructure development.
• Eastern Europe, former Soviet satellite states and Asian countries do have some ready supply of natural resources, but some regions are corrupt and home to organized crime.
• Smaller Latin American countries like Bolivia, Ecuador and Peru are sometimes categorized as “frontier.” However, most Latin American ETFs are more weighted toward advanced economies, and single-country ETFs don’t cover all the nations.

A few of the frontier market ETFs out there include:

• Claymore/BNY Mellon Frontier Markets ETF (NYSEArca: FRN): up 42.7% year-to-date; expense ratio is 0.65%; country samplings include: Egypt, Colombia, Kazakhstan, Chile and Poland

• Market Vectors Gulf States ETF (NYSEArca: MES): up 18.2% year-to-date; expense ratio is 0.98%

• SPDR S&P Emerging Europe (NYSEArca: GUR): up 58.3% year-to-date; expense ratio is 0.6%; note that GUR has a high allocation to Russia

• Market Vectors Africa ETF (NYSEArca: AFK): up 32.2% year-to-date; expense ratio is 0.83%; country samplings include: South Africa, Nigeria, Morocco and Egypt

Fore more information on frontier markets, visit our frontier markets category.

Max Chen contributed to this article.

The Polish economy stepped lightly throughout the global recession because its economy was not as heavily invested in exports compared to its other European counterparts, remarks Carter Dougherty for The New York Times. As a result, the emerging economy has seen a few positive developments:

• Poland’s GDP increased by 1.1% in the second quarter by the same period year-over-year, a result well above the expected 0.5% growth, writes Polya Lesova for MarketWatch.
• The Polish zloty jumped 1% against the euro and 1.1% against the dollar on the good economic report.
• The Danske Bank expects the economy to grow between 1.0% and 1.5% for 2009.
• The Polish Central Bank kept interest rates at 3.5%, citing increase in retail sales and rise in economic sentiment as indicators signaling an improvement in the economy.
• Poland’s labor market remains strengthened by foreign investment. Many big-name global manufacturers are setting up shop in Poland, which has helped bolster the employment rate.

On the flip side, Ryszard Petru, chief economist at BRE Bank in Warsaw, estimates unemployment will hit 9.9% by the end of 2009, up from 7.1%. The Central Bank also warns that reduced lending, more notably to the corporate sector, may diminish overall economic growth.

While there currently isn’t a Poland single-country ETF, there are a selection of emerging market/frontier market ETFs that do have Poland as a large component. These types of region-specific ETFs also have the added benefit of spreading risk between the economic outcomes of countries included in the ETFs.

• Claymore/BNY Mellon Frontier Markets (FRN): up 35.6% year-to-date; Poland is 15.1%

• SPDR S&P Emerging Europe (GUR): up 46.6% year-to-date; Poland is 12.2%

For more information on emerging markets, visit our emerging market category.

Max Chen contributed to this article.

In a recently released Cabinets report about the performance of the Egyptian economy, Egypt’s economy experienced an average 7.2% growth rate the last fiscal year (2007-2008) after 4.5% growth in 2004-2005, according to iStockAnalyst.

The growth in Egypt was attributed to the advancement of Gamal Mubarak in the ruling National Democratic party’s (NDP) and the free-market capitalism he espoused, reports Sora Khorshid for The Guardian. However:

• The neoliberal economic reforms are said to have harmed ordinary citizens while benefiting the well-connected.
• Transparency International ranks Egypt 115 out of 180 countries in the 2008 Corruption Perception Index.
• In a 2007 cabinet poll, 75% Egyptians believe corruption is prevalent, especially between the regime and businessmen.
• Around 20% of Egyptians own 80% of the country’s accumulated wealth. 43% of Egyptians live on less than $2 a day and 28.6% are illiterate.

Labor strikes are now frequently held as a popular sign of anger with the regime. The regime has continued to crack down on the opposition. This unrest could ultimately weigh on not only the Egyptian economy, but its related ETFs. On the plus side, ETFs focused on this region are diversified, thus spreading out the risk among several countries instead of just one.

As a frontier market, Egypt has the potential to be volatile. If this is an area of the world you’re considering, have an exit strategy in place to protect yourself.

• SPDR S&P Emerging Middle East & Africa (GAF): up 29.8% year-to-date; Egypt is 5.6%

• Market Vectors Africa ETF (AFK): up 29.3% year-to-date; Egypt is 14.2%

• Claymore/BNY Mellon Frontier Markets (FRN): up 34.2% year-to-date; Egypt is 15.7%

For more information on Africa, visit our Africa category.

Max Chen contributed to this article.

In Japan, the country’s exports and industrial production is on the mend. Analytical data points to an economy that is bottoming out, which has led to a Japanese small-cap rally. Small-cap companies tend to be more capable of adapting to the changing economic environment.

• SPDR Russell/Nomura Small Cap Japan (JSC): up 4.6% year-to-date; up 6.8% in the last month

• iShares MSCI Japan Small Cap Index (SCJ): up 3.4% year-to-date; up 5.1% in the last month

Thailand is another country that is starting to climb out of its economic hole. Spurred by government spending, job creation is on the rise. If there are any hiccups in the stimulus efforts, a second package is at the ready. Meanwhile, Thailand’s Prime Minister Abhisit Vejjajiva said he believes the country’s economy will post a positive growth rate by the end of this year.

• iShares MSCI Thailand Invest Mkt Index (THD): up 41.8% year-to-date; up 6.1% in the last month

Most experts note the recovery in world economies will start in emerging markets. These countries will be moving independently from developed countries.

• Claymore/BNY Mellon Frontier Markets (FRN): up 28.4% year-to-date; up 7.7% in the last month

Chile has been blessed with natural resources and the country is reaping the benefits of its commodity cache. The country’s financials are in order and Moody’s increased the country’s credit rating on an optimistic outlook. Its economy is only getting stronger with a GDP that rivals most Latin American countries, a decreasing poverty rate and increases in public spending.

• iShares MSCI Chile Investable Mkt Idx (ECH): up 53.3% year-to-date; up 3.3% in the last month

Max Chen contributed to this article.

Economists predict that 15 of the 20 fastest-growing countries for 2009 will be in Africa, reports Stefanie Eschanbacher for fundstrategy. According to the IMF, some African countries may become the “second generation of emerging markets” with macroeconomic performances on par with those of Asia countries’ back in the 1980s.

Africa has the untapped potential for growth and could result in increased income per head with a new middle class. The political and social environment is becoming more stable, and there are institutional reforms that have set interest rates and sound monetary policies. Make no mistake, though: Africa is still a volatile continent and there are risks involved when looking to frontier markets for investment.

Even if commodities like oil are not the money-makers they use to be, soft commodities, such as tea, cocoa and agriculture products, are more stable. African countries are also adopting economic models that focus on their domestic markets.

Fund managers are looking into African companies that deal with infrastructure projects, brewing, food, telecoms and cement. Areas such as South Africa, Nigeria and Zimbabwe show some promising investment opportunities.

But there are currency risks and possible fluctuations in inflation. These smaller and less liquid markets are currently deterring potential investors, as stated in SmartBrief. Once commodity prices start climbing, investors may once again favor the potential gains over the innate risks.

• Claymore/BNY Mellon Frontier Markets (FRN): down 1.2% year-to-date; Top Fund Country Weightings: Egypt 14.9%, Nigeria 1.9%
  

• PowerShares MENA Frontier Countries (PMNA): down 14.3% year-to-date; Egypt, 17.2%; Morocco, 16.4%
  

Max Chen contributed to this article.

By using ETFs, investors may diversify their portfolios with ETFs that track national indexes or broad baskets of well-known local stocks in emerging-market countries, iShares Emerging Markets Index Fund (EEM), writes Kirk Shinkle for U.S. News & World Report. It is noted that investors should check the holdings of such funds, as they may favor specific countries or sectors.

For those with a high risk tolerance, investors could use country funds, such as China’s iShares FTSE/Xinhua China 25 (FXI), to get in on the long-term action for a fast-growing economy or for short-term trades depending on market-moving news. There are many countires with their related ETFs trading, but among the few hopefuls that we may one day see in the ETF world include Argentina, Colombia, Egypt, Peru and the Philippines.

Funds that track world currencies such as the Russian ruble, CurrencyShares Russian Ruble Trust (XRU), and the Mexican peso, CurrencyShares Peso (FXM), are already at play.

Risky “frontier” markets, Claymore/BNY Mellon Frontier Markets (FRN), are also being traded with ETFs tracking stocks in the Middle East, WisdomTree Middle East Dividend Fund (GULF), and Africa, Market Vectors Africa (AFK).

Some funds track the trading of carbon allowances, like the iPath Global Carbon ETN (GRN).

New ETFs in the works may one day also provide for trading credit default swaps and even a fund tracking the direction of home prices.

Intrepid investors may also consider ETFs from Direxion that offer 3-times leverage on indexes and sectors. These ETFs are best for short-term trades since volitility can wipe away returns over time. It should be noted that these ETFs are not for the novice and faint-of-heart.

Whether you’re an exotic type of investor or you trend more toward the plain vanilla funds, always be sure to watch the trend lines to see what’s moving. Use the 50-day or 200-day moving averages as your guide for both entry and exit.

Read the disclaimer, as Tom Lydon is a board member of Rydex Funds.