One of the best performing markets of the past century is read hot again this century.

Warren Buffett said, “The 19th century belonged to England, the 20th century belonged to the U.S., and the 21st century belongs to China. Invest accordingly.” Maybe so, but this economy outperformed the U.S. in the 20th century, averaging +7.8% a year from 1900 to 2007, compared with +6.6% for the United States during the same period.

While the past is past, the outperformance of this country is continuing stronger than ever. In the past 10 years, this market has easily bested the performance of the iShares MSCI EAFE World index (an index of developed countries), returning an average of +14.6% a year, compared with about +11.0% for the index. It also blew away the +0.6% yearly average for S&P 500 in the same period.

Any guesses on the country in question? Turns out, the market delivering this impressive performance is Australia.

The continent down under was one of a very few world economies to escape recession in the aftermath of the financial crisis, continuing to grow exports and GDP right through 2009. In fact, the country is expected to post GDP growth of +3.4% for this year and +3.5% in 2011. Australia also currently has an unemployment rate of just 5.1%, nearly half that of the United States.

So how is the Australian market thriving while so many other developed countries are struggling?
In the past decade, Australia has consistently reduced the overall level of taxation, encouraging private consumption and investment. The country is rich in natural resources such as iron ore and coal (its top exports) as well as wheat, gold and natural gas. The country is also a natural trading partner with the fast-growing economies of Asia. Pro business policies and the ability to sell its abundant natural resources into to strong and growing demand in Asia is providing a strong backdrop for the Australian economy and stock market.

The largest element of the Australian economy is the service sector (tourism, education, financial services), which accounted for about 69% of GDP in 2009. Agricultural and mining accounted for about 57% of the nation’s exports and 10% of GDP. But, the mining sector is growing like crazy.

Asian demand has triggered massive price hikes in coal and iron ore, Australia’s two biggest exports. Revenue from mining is expected to generate +50% more revenue in 2010-11 than it did as recently as 2005-06. This influx of cash has boosted profits, wages and dividends.

But that growth might be just beginning.

The country is undergoing a staggering rise in investment in the mining sector to meet the voracious demand from Asia. Last week, Australian Deputy Prime Minister and Treasurer Wayne Swan told investors that Australia was about to engage in the biggest mining investment boom since the gold rush of the 1850s. The Australian Bureau of Agricultural and Resource Economics estimates the current pipeline of investments and projects is worth nearly A$360 billion, of which A$110 billion is in far-advanced projects.

And business investment isn’t just confined to the mining sector. The latest survey of business investment plans in Australia showed businesses overall were planning to invest A$123 billion just this year, which is an increase of +24% from last year and five times the investment from 2004.

The country already has an estimated trade surplus of A$18 billion for 2010 and A$23 billion next year. With the influx of cash and the overall health of the economy, the government has one of the lowest levels of debt among developed markets. This has caused the Australian dollar to skyrocket. In fact, the Aussie reached near parity with the U.S. dollar earlier this month, the highest level since 1983.

It’s pretty clear that while considered a “developed” economy, Australia has achieved emerging market-like growth and seems poised to continue this trend. But why fool around with developed markets? Why not just go for it and invest in emerging markets if that’s where most of the growth is?

The reason is because emerging markets can be quite volatile. Take the Chinese market, for example. After soaring about +100% in 2007, the Shanghai Index plummeted -65% in 2008. While the longer term total returns might be better, bad timing can be hazardous to your portfolio. In addition to providing steadier returns, developed markets also tend to pay a solid income.

Action to Take –> Perhaps the easiest way for investors to get exposure to everything the Australian market has to offer is through the iShares MSCI Australian Index (NYSE: EWA) fund.

EWA is a country specific exchange-traded fund (ETF) that tracks the MSCI Australian Index, which measures the performance of the Australian equity market. As of October 18, EWA held 74 stocks, primarily in financials (43%), materials (27%) and consumer staples (11%). Top positions included natural resources giant BHP Billiton (NYSE: BHP), Commonwealth Bank of Australia and Westpac Banking Corp (NYSE: WBK). The fund also has a trailing yield of 3.4%, based on distributions in the past year.

EWA has solid prospects for the next several years. The ETF offers a strong hedge against the U.S. dollar in one of the best performing currencies as well as inflation protection and a solid yield. The fund is a good value at current prices.