Asia rising: growth abounds as manufacturing and high-tech jobs shift to China and India.

There are two emerging heavyweight world economies: China and India. Together, the two are home to 2.3 billion people, three times as many as all the economically developed nations combined. Economic growth in these Asian nations has been proceeding at the astonishing pace of 8% to 10% a year. To put that in perspective, the U.S. is considered to have a boom year if growth hits 4%.

"[China and India] have large, billion-plus populations, but they're not punching at their weight," says Eric Sandlund, manager of the Columbia Newport Tiger Fund, which invests in Asian funds. "Their gross domestic products are much smaller than you'd expect, for economies of their size. Until the last decade or two, they have not pursued market-oriented policies."

Such policies have created megagrowth that makes it tempting to invest in Indian or Chinese companies. But there is risk too. India has faced political turmoil as recently as May, and China faces uncertainty as to how much free enterprise the Communist government will permit. Mutual funds offer several possibilities:

COUNTRY FUNDS

A few mutual funds invest only in the stocks of India or China. "For China, you have a spectrum of investment opportunities," says Bill Rocco, senior analyst at mutual fund research company Morningstar. Most funds have more exposure to China through Hong Kong companies than through mainland China companies."

Such funds can have very good years ... and very bad ones. For example, the Eaton Vance Greater India (ETGIX) fund had three years of losses, followed by a 114% return in calendar year 2003. Similarly, Alliance Bernstein Greater China (GCHAX) posted an 81% return last year, after negative results in 2000, 2001, and 2002.

REGIONAL FUNDS

Morningstar has a "Pacific/Asia ex-Japan" category of Far East funds that exclude Japanese companies. The average fund in this group had between 30% and 35% of its assets in Hong Kong/China and another 0% to 10% in India. Regional funds tend to be significantly less volatile than single-country funds.

"If you want Asian expertise," says Rocco, "Matthews is the place to go," referring to a family of funds specializing in Asian stocks. Mark Headley, president of San Francisco-based Matthews International Capital Management, who co-manages several of those funds, says that Matthews Pacific Tiger (MAPTX) is the best choice in his shop for investors who want both Chinese and Indian stocks. "This fund has over 40% [of its holdings] in those two markets, with an enormous exposure to China/Hong Kong."

DIVERSIFIED EMERGING MARKETS FUNDS

These funds invest in areas such as Latin America, South Africa, and emerging Europe, but have less exposure to China and India. Nevertheless, some entries cover the Asian countries: Oppenheimer Developing Markets (ODMAX), which Rocco calls "an excellent source of international spice," recently held 22% of its assets in India. Bocco also likes T. Rowe Price Emerging Markets (PRMSX) and American Funds New World (NEWFX). "Compared with single-country and regional funds," he says, "most investors would be better off investing in a broad emerging-markets fund, which usually have some China/Hong Kong holdings." For more overseas investing advice, see "Investing Outside the U.S.," this issue.

OP 5 CHINA & TOP 5 INDIA FUNDS
(RANKED BY PORTFOLIO WEIGHTING)

                                            % of
                                        Portfolio in     1-Year  Ann.
Fund Name: Ticker                       China/India     Total Return *

China

Matthews China: MCHFX                      73.26            36.95%
Guinness Atkinson Chin&HK: ICHKX           65.19            32.77
Columbia Newport Grt Ch A: NGCAX           62.68            33.77
US Global Inv China Reg: USCOX             57.87            40.33
Eaton Vance Grtr China A: EVCGX            48.29            28.62

India

Eaton Vance Grtr India A: ETGIX           100.00            47.87
Oppenheimer Develop MktA: ODMAX            19.37            40.30
Heritage Intl Equity A: HEIAX              18.38            23.70
Janus Adviser Intl Gr I: JIGRX             13.41            25.06
Janus Overseas: JAOSX                      12.52            25.80

                                                           Minimum
                                        3-Year  Ann.       Initial
Fund Name: Ticker                      Total Return *     Investment

China

Matthews China: MCHFX                       6.32%          $2,500
Guinness Atkinson Chin&HK: ICHKX            5.06            2,500
Columbia Newport Grt Ch A: NGCAX            5.29            1,000
US Global Inv China Reg: USCOX              5.47            5,000
Eaton Vance Grtr China A: EVCGX             3.61            1,000

India

Eaton Vance Grtr India A: ETGIX            17.16            1,000
Oppenheimer Develop MktA: ODMAX            15.06            2,500
Heritage Intl Equity A: HEIAX              -0.54            1,000
Janus Adviser Intl Gr I: JIGRX             -3.10            2,500
Janus Overseas: JAOSX                       2.01            2,500

                                            Toll-Free
Fund Name: Ticker                             Number

China

Matthews China: MCHFX                      800-892-0382
Guinness Atkinson Chin&HK: ICHKX           800-915-6566
Columbia Newport Grt Ch A: NGCAX           800-322-2847
US Global Inv China Reg: USCOX             800-873-8637
Eaton Vance Grtr China A: EVCGX            800-225-6265

India

Eaton Vance Grtr India A: ETGIX            800-225-6265
Oppenheimer Develop MktA: ODMAX            800-525-7048
Heritage Intl Equity A: HEIAX              800-421-4184
Janus Adviser Intl Gr I: JIGRX             800-525-0020
Janus Overseas: JAOSX                      800-525-8983

* RETURNS THROUGH JUNE 25, 2004. SOURCE: MORNINGSTAR INC. MORNINGSTAR
MAKES EVERY EFFORT TO ENSURE THE ACCURACY OF THIS DATA BUT CANNOT
GUARANTEE IT.