So why should we even care about this tiny Baltic country whose population is equivalent to that of Houston?

Simple. Because these things ripple across borders. Here’s what it means for the rest of Europe – and how to play it…

The Little Guys Need A Bailout, Too

In March, we noted the prospect of Latvia going bankrupt by this month. And as a result of Latvia’s failed auction, the currencies of other Eastern European countries such as Hungary, Poland and the Czech Republic were pounded.

With Latvia’s economy expected to contract 18% this year, the European Union and International Monetary Fund are reportedly considering a 7.5 billion euro ($10.6 billion) loan package to Latvia to help stem the crisis.

But that’s only if Latvia continues to peg its currency (the lat) to the euro and slashes government spending. However, there’s already been talk of a sharp devaluation of the lat.

To Devalue Or Not To Devalue?

If Latvia doesn’t devalue its currency: Sure, it might get the loans, but government services will be slashed and the debt crisis will remain. One third of the nation’s teachers have already been fired.

If Latvia devalues its currency: The country will have an easier time paying its debts. But citizens will see their buying power crushed and the country won’t get the help it needs from the EU and IMF.

Not only that, if the lat is devalued, there’s a good chance that the currencies of other eastern bloc nations like Romania, Bulgaria, and Lithuania would follow suit.

In turn, that could affect other countries like Poland and the Czech Republic. And Western European banks would be severely impacted.

The 1.3 Trillion-Euro Domino Effect

As mentioned in my February column, there are many banks all across Europe that have exposure to Eastern Europe.

In fact, Western European banks have 1.3 trillion euros ($1.8 trillion) worth of exposure to the region.

And the usually conservative Swedes are particularly vulnerable to a fallout from the Baltic states, with their banks having $75 billion at risk. So if governments devalue their currencies, banks that have outstanding loans in those countries will suffer devastating losses because the money that is repaid to them will be worth far less that what was originally lent out.

As I mentioned in my previous column, this could cause a flight to safety into the U.S. dollar. Here are two ways to play that trend…

Two Ways To Play The Eastern European Meltdown

~ iShares MSCI Sweden Index (AMEX: EWD): As I mentioned, Sweden’s banks are heavily exposed to Eastern Europe, so this is one country collectively holding its breath. This ETF tracks the price and yield performance of Swedish shares on the Stockholm Stock Exchange, and in addition to the serious pressure it faces from Eastern Europe, EWD also bounced over 70% from its lows and is due for a correction. You can short EWD or buy put options on it.

~ iShares MSCI Austria Index (AMEX: EWO): Like Sweden, Austrian banks also have a lot of exposure to Eastern Europe’s woes. And like EWD, this ETF seeks to replicate the performance of Austrian shares that trade on the Vienna Stock Exchange. EWO has doubled from its lows just three months ago and you can short it or buy put options if you want to play the downside.

For more on Europe’s woes, be sure to check out the recent column from my colleague (and one of my favorite Europeans) Martin Denholm.

Marc Lichtenfeld

Source: Latvia’s Economic Collapse: 2 Ways to Play the Baltic Region’s Financial Firestorm

But there are still countries with over 6% growth, says Andrew Gordon in Investor’s Daily Edge. Some of them, such as Afghanistan and Angola, aren’t the safest places in the world, however. And they are difficult to invest in directly.

A way around this is to find an American company doing business in these high-growth economies or a foreign company listed on a US stock exchange.

Market growth is nowhere to be found. Not in Canada, not in Mexico, not in emerging countries and certainly not in the U.S., as the chart below attests.

So, has market growth and the economic growth it depends on completely disappeared from the face of the earth. Not quite. There are still some countries showing impressive economic growth. The fastest-growing country in the world is Azerbaijan. Its economy is growing at an 18.6 percent clip. And on Azerbaijan’s heels is Angola – clocking growth of 16 percent.

According to the IMF there are plenty of countries whose growth comes in over six percent. I’ve listed them below from fastest to slowest.

Armenia (10)
Turkmenistan (9.5)
Liberia (9.5)
China (9.3)
Nigeria (9.1)
Georgia (9)
Libya (8.8)
Afghanistan (8.6)
Ethiopia (8.4)
Uzbekistan (8)
India (7.9)
Tanzania (7.8)
Panama (7.7)
Sudan (7.6)
Oman (7.4)
Vietnam (7.3)
Cambodia (7.2)
Montenegro (7.2)
Belarus (7.1)
Uganda (7.1)
Argentina (7)
Peru (7)
Moldova (7)
Egypt (7)
Mozambique (7)
Ghana (6.9)
Russia (6.8)
Madagascar (6.8)
Suriname (6.8)
Sierra Leone (6.5)
Morocco (6.5)
Lithuania (6.5)
Sri Lanka (6.4
Zambia (6.3)
Indonesia (6.1
Mauritania (6.1)
Uruguay (6)
Pakistan (6)

Other than the BRIC (Brazil/Russia/India/China), not many of the other countries have captured investors’ imagination. Vietnam and Argentina are the two notable exceptions.

Would you like to invest in the fastest-growing country – Angola? All I know about Angola is that my daughter lives on the Namibian side of the border between Namibia and Angola and the Peace Corps won’t allow her to step one foot inside Angola. It’s not the safest country in the world … to travel or invest in.

Pakistan anybody? How about Afghanistan? The Sudan? Clearly, many of these countries are unsavory for one reason or another. And many others are hard to invest in: there are no mutual funds investing in them or companies in those countries listed on American exchanges.

But there are some. For example, Telekomunikasi (TLK), Indonesia’s major telecom company, is listed on the New York Stock Exchange.

Another way to invest? Find an American company that is doing a lot of business in one or several of these countries. For example, Dow Chemical is making a major investment in Libya and Intel is doing a major project in Vietnam.

Or find a respectable overseas company listed on a U.S. exchange that is doing business in these countries. For example, Sasol (SSS), the oil and gas producer from South Africa, has operations in Mozambique and other African countries. It’s also listed on the New York Stock Exchange.

Or if you’re interested in Moldova, Belarus, Montenegro and other central European countries, you could invest in iShares Austria Index ETF, (EWO). This ETF invests in companies which do business in central Europe.

Granted, it’s indirect exposure. But given the risky nature of many of these countries, indirect is probably the best kind of exposure to have.

Source: It Is Still Possible to Invest in Growth