It’s scary out there!

This is quickly developing into the worst year for global stock markets since 2002 when the MSCI World Index plunged more than 20%. For the first six months of 2008, the global benchmark pummeled 11.8% to post its worst quarter since Q2 2002.

On a sector basis, only energy and basic materials posted gains over the last six months while everything else fell hard – all recording double-digit losses.

But while most investable regions have logged big declines this year, according to Morgan Stanley/Barra, one area is actually in positive territory.

Driven by a boom in commodities this decade, strong currencies and soaring foreign direct inflows, Latin America ranks as the top-performing region in 2008. The MSCI Latin America Index has gained an impressive 8% this year versus a 12.7% loss for the MSCI Emerging Markets Index.

Brazil is the primary reason why this regional benchmark is rallying amid the worst bear market in six years.

The Brazilian Bovespa Index is the largest constituent of the MSCI Latin America Index. The country is home to some of the biggest and most profitable natural resource companies that continue to benefit from an enormous export-driven boom. Earlier this spring, Petrobras (NYSE-PBR), the country’s largest oil concern, announced a massive oil find off the coast of Brazil.

But it’s not just commodities powering Brazil to new heights.

In May, S&P and Moody’s boosted Brazil’s foreign debt to investment-grade status – a landmark credit rating decision for a country that just a decade ago was ranked as the King of junk in the fixed-income universe. Brazil, until recently, also struggled for decades to arrest soaring inflation.

To be sure, Brazil and other South American nations have come a long way since the 1980s when regional inflation ran wild. Some countries, like Venezuela and Bolivia, are now regarded as pariahs among the international community following the confiscation of foreign oil assets. Argentina is still a basket-case economy with massive deficits that won’t go away. But for the most part, the region is enormously benefiting from skyrocketing commodities in the 2000s and unlike Asia, has thus far tamed inflation in the largest regional markets of Brazil, Chile and Mexico.

As long as commodities power ahead, Latin American should continue to benefit.