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It came up while grilling steaks and enjoying a gin & tonic after watching the riveting finish to the Master’s golf tournament. Australia’s Adam Scott outdueled Angel Cabrera of Argentina in pouring rain to capture the coveted green jacket.

Taking this international competition to a different arena, the topic came up; where would you rather invest right now, Australia or Argentina?

On the face of it, it seems a ridiculous question to even consider. After all, Australia has had 16 years of continuous growth, is at the sweet spot of Asian trade and a financially strong free market economy. Argentina is, well, another kettle of fish with high inflation, import and capital restrictions and high levels of government interference in the economy.

But let’s look at it this way, which country offers investors lower downside risk and higher upside potential?

In the case of Australia (NYSEARCA:EWA), expectations to continue their economic run are high. What could go wrong? Perhaps its dependency on China’s capital and export market will boomerang? About a third of Australian exports go to China and 96% of China’s investment is in Australian commodities that could go south at any time. Australia’s high real estate prices could also pop - leading to financial turbulence. Then there is the complacency that comes with success that almost always leads to unexpected disappointments that markets punish.

In contrast, to put it politely, expectations for Argentina (NYSEARCA:ARGT) are quite low. It can’t get much worse. This is why its market is trading at valuations about one half that of Australia.

In other words, we seem to be at what John Templeton famously called the “point of maximum pessimism”. Templeton made a lot of money for investors taking action during his career when most investors were heading for the hills.

This is important. Templeton’s record shows that things do not have to be great for stock markets to make a major move – they just have to get a bit better. Oftentimes, just the likelihood of new political leadership and few market reforms can lead to a surge of capital and build into a bull market.

Argentina cries out for more freedom of competition. While, President Christina Kirchner’s administration is unlikely to provide it, she won’t be there forever and jockeying for the top job is already underway. But remember that while buying low is important, finding bargains among quality companies will always give you the best chance of success.

This is why I selected last year as my Argentine gambit, farming giant Cresud (NASDAQ:CRESY). Cresud is one of the largest farming companies in Latin America. The company produces agricultural commodities like corn, wheat, soybeans, sunflower, sorghum, milk and beef cattle on about half a million hectares of land. In addition to Argentina, Cresud owns significant farmland in Brazil as well as other South American countries.

Cresud also has a great balance sheet, is largely an asset play as quality farmland is becoming more and more difficult to find in the world. The stock is trading at about 15% below book value but actually it represents even a bigger value since land bought many years ago by the company is carried on the balance sheet at cost rather than current market value. Last quarter’s revenue was up 19%. As a bonus, Cresud offers a 5.2% dividend yield and owns 55% of Argentinean real estate developer IRSA.

Real estate is a great place to play a turnaround because it is usually the first sector to sharply recover. There are some sophisticated investors out there thinking and acting along these lines.

DPEC Partners, a New York based private equity firm, has invested in a sizable vineyard property and real estate development in Mendoza, Argentina called Algodon Wine Estates. It has also purchased and restored a historic mansion transforming it into a luxury boutique hotel in Buenos Aires’ most elegant neighborhood. CEO Scott Mathis remarks that these investments were done without debt and believes they are in the right place at the right time. Sounds like a winning strategy to me.

And despite their different economic circumstances right now, Argentina and Australia have more in common than you might think. The list includes ample natural resources, vibrant cultures, openness to immigrants and warm hospitality, not to mention great golf courses. They also produce some of the best wines in the world.

The lesson here is to be open minded and willing to go against the crowd. Zig when others zag.

Disclosure: Long CRESY

Source: The Money Masters: Argentina Vs. Australia