(FORTUNE Magazine) – Of all the emerging Eastern bloc nations, none has a brighter future than Hungary. This peppery land of goulash and bauxite has taken to economic freedom with a vengeance. Within the last year or so, for example, Hungary committed in principle to sweeping privatization, opened the first regulated stock market in Eastern Europe, and implemented stringent monetary and fiscal policies. What makes this a particularly good time to invest in Hungary is that many of its stocks, bid sky-high during the early days of perestroika-induced euphoria, now look cheap. For example, Ibusz, the former state-owned travel agency and the first privatized company traded on the Hungarian stock exchange, sold for 20 times earnings in June 1990; now its P/E is 8. Why the drop? When Soviet hard-liners attempted a coup last August, investors in Eastern Europe took wing. Though the coup failed, doubts remain about Eastern Europe's ability to push through badly needed economic reforms. Hungary's government, while still dedicated to free markets, is temporarily torn between hastening privatization and avoiding the wholesale layoffs that would inevitably ensue. And with the Soviet economy in shambles, Hungary's exports to its former master are being hurt. But long term the outlook is bright. Morgan Stanley predicts that the Hungarian GNP, after dropping 7% this year, should be flat in 1992 and grow 3% in 1993. Says Richard Davidson, an international equity strategist at the firm who specializes in Europe: ''If Hungary's economic restructuring stays on track -- and we think it will -- there's going to be big opportunity for growth.'' Though the recovery is still a way off, analysts say that Hungary's low stock prices make now a good time to invest. For American investors, there's one easy way to buy a piece of Hungary's future -- Austria Fund, a closed-end fund that trades on the New York Stock Exchange. The fund owns stakes mostly in Austrian companies but has recently started buying Hungarian stocks, which now make up 6.7% of its holdings. In addition, many of the fund's Austrian stocks live or die on exports to Hungary, giving investors an even broader play. Austria Fund's portfolio manager Joseph Williams says he's looking for Hungarian companies that can provide Western Europe with cheap goods. Among his holdings: Styl, a textile company, and Fotex, a successful fast-film processor that has branched out into consumer luxury goods like crystal goblets and vases sold mostly in Western duty-free airport shops. He also likes Ibusz, the travel agency. Last year shares of Austria Fund sold for $25. Today, thanks to a crumbling Soviet economy, they sell at $10, or an 8% discount to net asset value, an attractive price for patient money.