(FORTUNE Magazine) – Looking for something to spice up a tired portfolio? Dip into Latin America's bubbling stock markets. Free-market reforms throughout Central and South America are reshaping the region, particularly in Mexico, Chile, Argentina, and Brazil. Foreign money is pouring in, and the stock markets are up sharply. Until recently investors in Latin America would take their gains and run, fearing a sudden reversal. But no more. Says Daniel Jacobs, a portfolio manager with the Templeton funds: ''These aren't trading opportunities anymore, they're long-term investing stories.'' In Mexico, the economic reforms put in place by President Carlos Salinas de Gortari, which include privatizing state-controlled industries (most recently banks), reducing tariffs, cutting the budget deficit, and controlling inflation, have attracted big investors from Toronto to Tokyo. Mexico's stock market more than doubled in the past year, to $81 billion, and its economy is bounding ahead at a 5% clip. Three closed-end mutual funds invest directly in Mexico. The Mexico Fund, the biggest, has climbed 84% this year and now trades around $24 a share, while the Mexico Equity & Income Fund, up 38%, sells for about $14. The third, the Emerging Mexico Fund, up 92%, is considered the best bet by Michael Porter, a closed-end fund analyst at Smith Barney. He likes its 9% discount to net asset value (NAV). Chile boasts the most advanced free-market economy in all Latin America. During the 1980s the brutal Pinochet dictatorship instituted meaningful economic reforms; it paid down the country's debt, privatized state companies, and diversified the trading base. Such changes have driven Chile's market up 500% in five years. There's plenty of money to keep Chile's market cooking. The country has $8 billion in pension funds that are bound by law to invest only in Chile's domestic markets. Says Christian Wignall of GT Capital Management, a mutual fund company: ''That's a tremendous structural demand for equities.'' The Chile Fund, up 106% this year, sells at $32, a 14% discount to NAV. Argentina lags behind Mexico and Chile in reforms, but the government has moved quickly since this past spring to catch up. Argentina's currency, the austral, has been stabilized, and a proposed new tax system promises to bring the country's budget under control. Says Morgan Stanley economist Robert Gay: ''Mexico did this over a couple of years. Argentina has done it over a number of months, and it's on the right track.'' Scudder Stevens & Clark will soon offer a direct route into the country through the Argentina Fund, currently in registration with the SEC. But investors may want to hold off for a bit. The market is up an astounding 237% over the past 12 months and has doubled in the past month alone. While the economic reforms are encouraging, analysts worry that stock prices are due for a correction. Despite enormous economic problems, Brazil may offer the best long-term bet of all. The government of President Fernando Collor de Mello has so far delivered little in the way of reform, and inflation is running 365% annually. Yet there is hope that Brazil will get on the reform bandwagon. If it does, & Brazilian stocks will take off. Despite a recent gain of 38%, Brazil's market is selling at nearly the same level as seven years ago. Brazilian stocks have plenty of room to climb. The economy produced a gross domestic product of $522 billion last year, more than double Mexico's, yet Brazil's stock market capitalization is only 7% of GDP, while Mexico's market is 36%. Early investors, believing the country will soon undertake serious reforms, have driven share prices of the Brazil Fund up 149% this year to $16.50, a 23% premium over its NAV. Analysts advise holding off until the premium cools to less than 20%. Advises fund analyst Michael Porter: ''If you wait for the fund to go to a discount, you may wind up missing a big move in the market.'' Want to avoid deciding which market to play? Then play them all. The Latin America Investment Fund, diversified and closed-end, has money spread over seven Latin countries. The fund is up 131% since the beginning of the year.

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