Asian evasion.

CALIFORNIA Public Employees Retirement System, the largest U.S. pension fund, earned an impressive 23.3 percent return in 2003. Imagine how much better it might have done if it paid more attention to Asia.

In February 2002, Calpers pulled out of stocks in Indonesia, Malaysia and Thailand, citing concerns about corporate governance, political instability and labor standards. It turns out that those markets have been among the world's top performers for two years running.

Calpers shareholders missed out on a 17 percent rise in Thai stocks in 2002 and 117 percent jump in 2003. They also lost out on an 8 percent rise in Indonesian shares in 2002 and a 63 percent increase in 2003. Malaysian shares rose almost 23 percent last year.

Its absence from some of the world's most exciting markets had Asia investors joking that Calpers is a giant, contrarian indicator. When it's not in a particular Asian country, that market is probably a "buy."

Joking aside, when Calpers, with $161 billion in assets, writes off a country, markets tend to listen and, sometimes, follow suit. The good news is that Calpers is reconsidering things. Last week it reinstated Malaysia to the list of markets in which it may invest, citing improved political stability, transparency, labor standards and market liquidity.

The move came three months after Prime Minister Mahathir Mohamad, a controversial figure in global markets, stepped down. His successor, Abdullah Ahmad Badawi, has pledged to reduce corruption and shunned the large-scale "vanity" building projects of the Mahathir era.

In a report from consultant Wilshire Associates that Calpers uses to help make emerging-market decisions, Thailand and India showed improving scores but fell just short of passing grades. They may soon win some of the $2.6 billion Calpers has invested in emerging markets.

Calpers officials have said they hope emerging-market nations would see exclusion from its investment list "as an incentive to improve." Calpers may be disappointed to hear its influence has waned.

Thai Finance Minister Suchart Jaovisidha said he didn't "see any problems" with Calpers' decision to continue avoiding Thailand. That's a departure from the frantic lobbying Calpers officials might have experienced a few years ago.

One reason is that investors are looking at Asia with more sophistication, rather than just following the herd. Before and immediately following the 1997-1998 Asian crisis, foreigners grouped the region together. These days, they are viewing improvements in Asian banking systems, fiscal policies and transparency on a case-by-case basis.

Now that Calpers and other "smart money" types are smartening up to Asia's stock boom, pension shareholders may be an even happier bunch. Regardless of what they do, Asia is very much back on investors' radar screens and for good reason.

William Pesek Jr., Bloomberg News