Consider this: While U.S. interest rates remained near zero, the S&P 500 index advanced 15.48% in the 12 months ended December 11. Not bad, unless you compare that to certain overseas indexes. Belgian equities, for example, rose 35.25% (in U.S. dollar terms) over the same period, and the Philippines and Turkey indexes measured by MSCI both soared more than 47%!

But if past performance is no guarantee of future returns, what opportunities might exist in international investing for the year ahead?

“International investing offers the opportunity to capture the benefits of economic growth around the world,” says Todd Douds, senior vice president in research and operations at Fort Pitt Capital Group in Pittsburgh. “We see opportunity for investors to take a long-term strategic allocation to both non-U.S. developed markets and emerging markets.”

Given the global credit crisis, though, doubts would be understandable. More surprising still, some experts are bullish on international debt—not all debt, but select bargains. “We continue to see attractive investment opportunities in foreign sovereign, quasi-sovereign and corporate bonds,” say Stephen Hooker and Daniel Senecal, who co-manage the Virtus Emerging Market Debt Fund at Newfleet Asset Management in Hartford, Conn.

Where? With a global purview, Hooker and Senecal find that emerging markets tend to “have better balance sheets, better fiscal discipline and stronger growth than the developed markets,” they recently explained in a joint e-mail. “As a result, EM issuers continue to be rewarded by credit ratings upgrades and, ultimately, lower financing costs, which help to perpetuate the cycle.”

Naturally, though, there are risks. “Fluctuations in exchange rates can have a dramatic impact on investment returns, as can changes in the political and social climate,” concede Hooker and Senecal. “Liquidity conditions can be more volatile and need to be closely monitored.”

To other market watchers, those risks may outweigh the benefits. “The combination of high prices, low yields and weak investor demand increases the probabilities that global bonds can move much more easily downward than upward in the months, and possibly even years, ahead,” says Paul Desmond, president of Lowry Research Corp. in Palm Beach Gardens, Fla.

International equities could be a different story, however. “I expect European markets to be range-bound for years as they struggle to find political solutions to all that ails them,” says Charles Sizemore, an investment model manager and RIA at Boston-based Covestor. “But that’s OK; you can make money in a range-bound market.”

Sizemore specifically likes consumer-products providers. “They tend to have the best positioning in [serving] emerging markets,” he says. “They are locking in the loyalties of up-and-coming middle class consumers. There is a huge first-mover advantage here, and they are taking advantage of it.”

Audrey Kaplan, head of global equities at New York-based Federated Investors and senior portfolio manager of the Federated InterContinental Fund, favors opportunities in northern Germany, Norway and Denmark while underweighting debt-ridden economies such as those of Spain, Ireland and Portugal. “German corporate fundamentals, particularly, will be a key driver of stock price appreciation,” she says. “We are overweight Norway because the country has strong public finances and is benefiting most from the boom in offshore oil and gas drilling.”

In Latin America, her search for “strong growth and high-quality sovereign balance sheets,” she says, leads her to prefer Mexico and Brazil. In Asia, she is looking closely at China. “While pockets of China’s economy may be slowing, we believe that China’s domestic economy is strengthening due to a growing middle class.”

Within these country preferences, she favors well-capitalized global companies with growing businesses and revenue streams. “Many of our companies are export-oriented firms with a significant bias to the industrial and consumer-discretionary sectors,” she says, citing luxury goods suppliers, automakers, energy producers, capital goods companies and Asian technology powerhouses.

Emerging Market Equities
Yet it’s in the lesser-developed regions where others find equity opportunities. “Valuations in EM equities are very attractive at these levels, particularly in southeast Asia,” says Paul Attwood, a vice president and portfolio manager at Columbus, Ohio-based Huntington Funds, a subsidiary of Huntington National Bank. As a group, he says, the stocks are “trading at about 10 times their next 12 months’ estimates.”

In particular, Attwood is bullish about emerging market health care. “Per capita spending on health care has doubled over the last 10 years in these areas,” he says.

Brad Thompson, chief investment officer at Stadion Money Management in Athens, Ga., also likes emerging market stocks because of the regions’ “growing populations, natural resources, investments in productivity, and expanding government and corporate governance,” he says. He cautions, however, that you need “effective tactical methodologies that reduce exposure to mitigate volatility.”

On the other hand, sometimes it helps to take the long view. “Over longer time periods, emerging markets usually produce far better returns,” says Robert Lutts, president and chief investment officer at Cabot Money Management in Salem, Mass. Over the past 10 years, he says, India’s broad market index posted an annual return of nearly 20% and Hong Kong’s was nearly 11% (in local-currency terms), while the S&P 500’s was just over 6%.

Lutts is especially bullish about India, Brazil and China, in that order. “We expect the internal growth engines of these countries to start delivering better results, [and] their currencies make these countries more attractive places to do business now,” he says.

Bad News Becomes Good
Others search farther afield for promising distressed stocks. “Economies recovering from disasters in prior years, such as in Thailand, and dynamic exporters with sound banking systems, such as in Turkey, particularly appeal,” says Stuart Quint, a senior investment manager and international strategist at Berwyn, Pa.-based Brinker Capital.

For those who want to leverage the rapid-growth possibilities of emerging markets but are leery of the risks, there is another solution. “There are many large-cap companies domiciled in the U.S. that profit from the buying power of a nascent middle class in emerging markets,” says Curt Fintel, chief investment strategist at CTC Consulting in Portland, Ore. “In many portfolios, we pick up exposure to [emerging market] economic growth through the backdoor by owning high-quality U.S. companies that have a significant global footprint.”

Dividend Yields
Emerging market equities have another appealing characteristic: Many pay dividends. “What’s happened in the last few years is the emergence of dividends and—equally important—steady dividend growth,” says Dublin, Ireland-based David Hogarty, head of strategy for Kleinwort Benson Investors’ Virtus Emerging Markets Equity Income Fund. “You actually get higher dividend yields in emerging markets than in North America, and the dividend growth rate is more than double.”

Stocks with “strong dividend characteristics can generate excellent returns,” Hogarty argues. What’s more, he says, “In regions where the accounting practices aren’t as strong as in the West, dividend payments are a straightforward way for companies to show their earnings are real.”

Attractive dividend-paying companies, often small- to midcap names, says Hogarty, thrive in such places as the Czech Republic, Poland, South Africa and Taiwan. “It’s important to look beyond the highly publicized BRIC names,” he says, referring to Brazil, Russia, India and China.

For those who are wary of international stocks and bonds, foreign currencies are a viable alternative. “The FX market presents a unique opportunity that is somewhat ignored or simply not understood,” says Michael Cairns, CEO of FX Solutions, a retail foreign-exchange dealer headquartered in Saddle River, N.J., referring to the foreign exchange (FX or “forex”) markets. “FX is a global market without a centralized exchange. [It] used to be the sole domain of banks with retail investors excluded, but that paradigm has shifted dramatically.”

Some investors may be leery of FX’s volatility. “Currencies fluctuate and can add volatility to your portfolio, but that is also one of their advantages,” says Chris Gaffney, a senior vice president and sales director at EverBank WorldMarkets in St. Louis. Currencies, he says, tend to move independently of other securities. “By adding these ‘non-correlated’ investment classes to your portfolio, you can actually raise your returns while lowering the overall risk.”

Which currencies make the best hedges? Gaffney prefers commodity-based currencies from countries with “strong underlying fundamentals,” he says. That includes the Norwegian krone, the Singapore dollar, the Australian dollar and the Chinese renminbi, among others.

For most investors, trading in currencies isn’t the easiest thing to do. That’s why some experts recommend currency-based exchange-traded funds. “Some of the best opportunities for profits, or at least capital preservation, over the next 18 months or so may be found in currency-related ETFs,” says Desmond of Lowry Research. He cites the ETFs of the Australian and New Zealand dollars and the Japanese yen.

Private Equity
For long-term investors, yet another opportunity lies in private equity. Robert Worthington, president of Hatteras Funds, headquartered in Raleigh, N.C., runs a fund of funds made up of “small but very experienced” overseas private-equity funds that, in turn, he explains, are actively involved in managing the companies they invest in. “In India, private equity opportunities exist in financial companies and food distribution,” he says. “In China, we like health care, partly because the Chinese population is aging rapidly and demand for health-care services is growing well above the GDP growth rate.”

European credit concerns create private-equity bargains there, too, Worthington says. “There are opportunities in niche companies, such as those that supply cable installation and protection to wind farms off the North Sea.”

Not that there aren’t opportunities in public markets as well, he hastens to add. “But if you’re able to take a long-term outlook and lock up your money for a while, the potential returns from international private equity are significantly higher.”