NEW YORK (CNN/Money) - Recession, devaluation, political unrest. Argentina has suffered them all. It has been feared that Brazil and Uruguay would suffer from Argentina's weakness, but their problems, for now, appear to be their own.

Argentina, the third largest economy in Latin America, spiraled out of control in 1998, when Russia defaulted on its debt. The crisis of confidence that ensued drove Argentina into recession and caused investors who once favored emerging markets to head for higher ground.

Now, experts debate whether Argentinean woes are casting a spell on neighboring economies; whether Brazil and Uruguay will become the next victims of contagion.

The U.S. government on Monday approved an emergency loan of $1.5 billion to troubled Uruguay, aimed at keeping its financial system from collapsing and to enable its banks to reopen.

Until the smoke clears, U.S. investors have adopted a wait-and-see approach. But some mutual fund managers see light at the end of Latin America's tunnel, which could prove profitable for early investors.

"At the moment, there is global risk aversion and when this happens Latin America suffers," said Jim Barrineau, Latin American analyst for Capital Alliance. "Although there has been a lot of overshooting, periods like these produce periods of making a lot of money so investors should keep an eye out but continue to invest."

Indeed, international stocks have long been touted as an important piece of the diversification puzzle. Such investments, however, are considered higher risk, since currency fluctuations and political maneuvering can quickly sap your returns. When you talk emerging markets, like Asia, Russia and Latin America, the risk level doubles.

Experts say that's all the more reason global investors need to pick their bets with care.

Country-specific funds or regional funds, for example, are higher risk since more of your eggs are tied to one basket, said Morningstar analyst William Rocco.

Indeed, over the last 12 months, Latin America stock funds have turned in a dismal performance -- losing 9.8 percent. That compares with gains of 2.8 percent for emerging market funds as a whole.

"Emerging market funds are the best option since there is wider exposure to the whole world," Rocco said.

That's not to say, however, that you can't find treasures among the rubble. Rocco said his top picks among LatAm stock funds are Scudder Latin America S (SLAFX: Research, Estimates), T. Rowe Price Latin America (PRLAX: Research, Estimates), and Van Kampen American A (MSLAX: Research, Estimates).

Just how fast and far the Latin America stock markets recover remains to be seen. In large part, analysts say, it depends on the ability of Brazil and Uruguay to stay above the Argentinean fray.

Argentina defaulted on $155 billion in public debt in December 2001 after four years of recession. Eduardo Duhalde, the fifth president since December, was forced to devalue and float the peso, the local currency, after a decade during which it was fixed to the U.S. dollar.

After the default, all savings accounts were frozen and those consisting of U.S. dollars were converted to pesos. At the same time, unemployment reached a record 25 percent and gross national product (GNP), a broad measure of Argentina's domestic economy, fell to about a third of its pre-devaluation level.

At the time, economists feared Brazil and Uruguay would follow suit. But most now agree the troubles facing those countries are not directly tied to the chaos in Argentina.

Brazil's potential for default, for example, is attributed to nearing elections. Luiz Inacio Lula da Silva is expected to win, but investors worry over the left-wing candidate's policies to battle debt and inflation.

The real has fallen more than 10 percent since the beginning of June, but Brazil has received $10 billion in credit from the IMF to fend off debt and some say they see signs of life for Latin America's largest economy.

"After elections are over, Brazil will rally back," said Barrineau, of Capital Alliance.

Adds Brian Gendreau, of Salomon Smith Barney: "Its GDP forecast shows upward shift and interest rates have fallen recently, which is good for equity."

For its part, Uruguay also has received help from the IMF. The country suffered a downturn in part when Argentina limited withdrawals from banking accounts. That sent Argentines running to cash out their Uruguayan accounts for spare cash, which dried up Uruguay's reserves.

To its credit, however, Uruguay has performed differently than Argentina in the face of a currency crisis. The country has come up with a plan to cut spending and increase tax revenue. As a reward, the IMF in March promised a $743 million loan over a period of 3 years.

It, too, is showing signs of stability, economists say.