South Korea is due to be upgraded from "emerging market" to "developed market," which means it will be removed from the iShares Emerging Markets ETF ( EEM), long a popular proxy for emerging market investing. South Korea has been one of the largest components of the fund, so its removal will make way for smaller countries and more volatility.

Investors buy foreign stocks, including emerging markets, to diversify their portfolios. For most people, this means buying a broad-based fund like the iShares Emerging Markets ETF. However, broad-based funds can be a less efficient means of diversification because they blend countries with different attributes, nullifying some of the effect.

A better solution is to invest at the country level, either with country funds or individual stocks. The pending change in iShares Emerging Markets ETF makes this a good time to reconsider how to access the space. Chile and Thailand make for an excellent compare-and-contrast. Chile is a commodity-based economy (copper), has a trade surplus, a stable government and privatized social security, which creates a constant source of demand for equities.

In contrast, Thailand has a history of instability, both in its currency (it was ground zero for the Asian contagion in 1997) and its government (there have been ten coups since 1933). Thailand is making news today due to questions about the legitimacy of Prime Minister Abhisit Vejjajiva, which has caused the currency to wobble.

Thailand has positive attributes, including exports of food products, clothing and electronics, but it has a different set of characteristics from Chile. At times, Thailand has been a great hold but at other times it has been better to sell. An investor able to devote the time to learn about different countries, specifically their economies, cycles and vulnerabilities, can achieve a better long-term result than just buying iShares Emerging Markets ETF.

One reason to write about Chile and Thailand is that they aren't the most talked about emerging-markets investments. But they are each easily accessed via the iShares MSCI Chile Investable Market Index Fund ( ECH) and the iShares MSCI Thailand Investable Market Index Fund ( THD).

The Chile ETF is heaviest in utilities, at 31%, followed by materials, at 19%, and industrials, at 10%. It's unusual to see utilities weighted so heavily in a country fund, but there was just an article this week in the WSJ making a bullish case for the sector in Chile because of safety. The Thailand ETF has 32% each in financials and energy. That much in energy is a little surprising because Thailand imports about two-thirds of its consumption needs. Neither fund has much in the way of technology or health care.

The past two years have been a good microcosm of what owning different countries can look like. Thailand, for the reasons above, is a more volatile investment destination, whereas Chile is less volatile. They also tend to have different economic cycles. Chile's copper tends to be earlier in the cycle compared to the exports, especially electronics, of Thailand. During good times, Thailand does better, and during the bear market, it's done far worse.

For now, I believe the early-cycle potential of copper combined with the political unrest on Thailand's front burner makes Chile the better choice. But a few months from now when political problems subside and perhaps the economy stops deteriorating, Thailand will likely become more appealing. Based on its history, Thailand is probably better as a shorter-term hold. It has had periods of fantastic rallies -- up 40% in the first seven months of 2007 -- and some painful declines -- down 57% in just a few months in 2008.

At the time of publication, Nusbaum had no positions in the securities mentioned.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback; click here to send him an email.

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