(FORTUNE Magazine) – BUY MEXICAN STOCKS? That's certainly not something Bonnie and Timothy Sprague had thought of five years ago. For the husband-and-wife radiologists from Santa Monica, California, Mexico was a place to spend money -- on vacation -- not make it. Today, because of a cocktail party conversation with a Merrill Lynch broker, the Spragues have tripled their initial $4,100 investment in Telefonos de Mexico, the national telephone company. They have also bought shares of companies in Britain and Hong Kong, two Pacific Rim mutual funds, a Latin American fund, and a global fund -- all profitably. There have been some bumps down south. Telmex and an investment in Mexican retailer Cifra six months ago are both down 25% from their highs this year along with the market. But the Spragues are sticking with them. Says Bonnie: ''You have to ride the ups and downs. Hey, I bought IBM and Digital several years ago, and you see what happened to them.'' The Spragues are hardly unique anymore. Last year U.S. investors, including both individuals and institutions, bought a record $35 billion of foreign stocks -- nearly three times the previous record in 1989. The reason is simple enough: Foreign markets have been more profitable. Of 18 major stock markets tracked by Morgan Stanley over the past ten years through August, the U.S. ranked 12th, with a total return of 351%, including reinvested dividends. In the lead was Belgium (yes, Belgium!), with a return of 1,080%, followed by the Netherlands, with 781%, and France, with 671%. Not once in those years did the U.S. rank first, and it ranked in the bottom half five times. Investing abroad also spreads your risk, since global markets usually do not move together. Says John Bolsover, who oversees $34 billion for Baring Asset Management in London: ''It's no more complex than the all-the-eggs-in-one- basket concept. Sometimes the basket drops.'' Take 1987, the year of the crash. U.S. stocks were up just 3% -- less than the rate on three-month Treasury bills. While some markets suffered even more -- Germany was down 25% -- Britain rose 35%. There are over 200 U.S.-based mutual funds that invest in foreign stocks, nearly triple the number five years ago. That includes about 65 global funds, which invest anywhere in the world; 85 international funds, which invest everywhere but the U.S.; 45 regional funds, which invest in just one part of the world, such as the Pacific Rim or Latin America; and 40 single-country funds. In addition, the number of foreign companies that sell shares through American depositary receipts (ADRs) has tripled in five years to about 450. Still, as with any investment, the question remains: Where in the world should you put your money now? Here are some ideas culled from dozens of interviews with investment professionals around the world.

EUROPE -- Europe has a large number of globally competitive companies whose shares are far cheaper than those of their U.S. counterparts. The average price/ earnings ratio for most European markets is between 13 and 15 -- compared with well over 20 in the U.S. -- and the average dividend yield is 50% higher. The one problem -- and it's a big one -- is Europe's economy, which is burdened with sluggish growth, widening budget deficits, and high unemployment rates. J.P. Morgan forecasts GDP to grow just 1%, on average, for European countries this year. Partly, Europe is suffering from too much borrowing and spending in the 1980s. But the immediate problem is Germany, which has been keeping interest rates painfully high to fight inflationary pressures caused by the country's huge spending for unification. That policy has clashed with Europe's own drive for economic and political unity, which has included keeping currencies generally aligned. To do so, other European countries until recently have had to keep their interest rates high, stifling business activity. When the strain grew too great in September, Britain and Italy, among others, lowered interest rates and allowed their currencies to plummet. Germany finally lowered its own rates slightly and may well ease further in the months ahead. Alastair Ross Goobey, chief investment strategist at James Capel in London, predicts that Germany's central bank will lower rates in several steps by another one to 1.5 percentage points by early next year. Lower interest rates would lift stocks, but U.S. investors should also protect themselves against currency risk because falling rates would push down European currencies, which have risen this year to historically high levels against the dollar. One solution is options or futures that rise in value as the dollar does. However, these instruments can be complicated and expensive. An easier way is to buy such European stock funds as GT Europe Growth, which hedge currency exposure for you. GT was recently spending about 3% of assets to hedge 50% of its currency risk, but the fund expects to more than make up that through a rise in stock prices. If you want to invest directly in stocks, European professionals suggest buying shares of companies with large, profitable U.S. operations that will benefit from a rise in the dollar. Goobey of James Capel likes two British concerns: Grand Metropolitan, which receives about half its profits from American food and beverage businesses, including Burger King and Pillsbury; and BAT Industries, the world's second-largest tobacco company after Philip Morris, which earns more than 70% of its profits from the U.S. Both available through ADRs, they sell at around 12 times Goobey's estimate of 1993 earnings. BAT also packs a 6% yield. Another tactic is to buy shares of big exporters whose products will become more competitively priced in the U.S. as the dollar strengthens. One company that should get a lift, says Alan Rubenstein, a director of Barclays de Zoete Wedd Investment Management in London, is Rolls-Royce, a maker of jet engines (the cars are made by Vickers). He thinks that the stronger dollar should help the company compete against General Electric and Pratt & Whitney. Rolls is doing fine anyway, with firm orders for more than 400 engines in each of the next two years. Rubenstein believes that the stock, which has an ADR traded over the counter, is ready to take off. It sells for just 13 times his estimate for 1993 earnings. Drug companies, always large exporters to the U.S., are especially good bargains compared with their American rivals. John Horseman of Global Asset Management in London is bullish on Astra of Sweden, which has been increasing earnings at a 40% annual rate, helped by Losec, a new anti-ulcer drug. He also likes Swiss drugmakers Roche and Sandoz, which recently introduced ADRs in the U.S.

JAPAN -- The pros disagree. That's always true. But the contrasting views are starker now in Japan. Barton Biggs, Morgan Stanley's worldwide investment strategist, is skeptical. Kenneth W. Anderson, a managing director of J.P. Morgan Investment Management, is bullish. Biggs was unimpressed when the Japanese government came up with its $86 billion bailout package in August to stem the Tokyo market's slide to a six- year low. Says he: ''Government attempts to support stock markets have never worked anytime, anywhere. Finance ministers do not end bear markets.'' He believes the Nikkei average, Japan's leading market barometer, is still too high in light of problems at Japanese banks, which are staggering under the weight of billions of dollars in bad real estate loans. By his estimate, the market currently sells at about 50 times earnings for the fiscal year ending next March. ''That's not what I call cheap,'' he says. He thinks the Nikkei, recently at about 18,000, could fall below 14,000. Anderson's brighter view is based on the market's price-to-cash-flow multiple of 8.5 and price-to-book-value multiple of 1.9, both a touch below U.S. levels. He also points to Japan's balanced budget, unique among major industrial nations; its people, who work longer hours than Americans and Germans; and the country's famous annual personal savings rate, still impressively high at about 15% -- nearly three times that of the U.S. So which one do you follow? Joe Scott Plummer, chief investment officer of Martin Currie, one of Scotland's famed investment firms known for their patient, long-term approach, suggests a compromise, that old standby, ''dollar cost averaging,'' where you invest a fixed amount of money at set intervals -- say, $100 each month. This is easiest through a mutual fund like Scudder's Japan Fund, which will automatically transfer funds from your bank for you. If you want to invest directly, a number of managers -- including Biggs -- would buy the big blue-chip exporters Japan is famous for, such as Canon, Sony, Matsushita, and Hitachi (all available through ADRs). While sales have been dampened by the global recession, these companies should emerge even more competitive because of heavy R&D investment and aggressive cost cutting. Plus, the price is right. All have price/earnings ratios below 20 and price-to-cash- flow ratios below 7, and sell near or below book value.

ASIA -- There is no place in the world about which money managers are more enthusiastic. A typical comment comes from Keith Brown, chairman of London- based Worldinvest, which invests $4 billion for such blue-chip companies as McKinsey & Co. and Philip Morris: ''If I had to leave my money in one area of the world and not touch it for ten years, that's where I'd put it.'' Brown and other investment experts see a formidable group of competitors -- Korea, Taiwan, Hong Kong, Singapore, Thailand, and Malaysia -- that show no sign of easing up. Last year GDP of these countries grew over 7% on average for the third consecutive year, and J.P. Morgan estimates it will remain close to that in 1992 and 1993.

The secret? Mostly it comes down to a strong work ethic, but the countries also benefit from young populations, strong family ties, pragmatic governments supportive of business, and -- except in Malaysia -- an absence of major religious or ethnic strife. For the U.S. investor, there is an added benefit -- their currencies mostly are tied to the dollar, so you won't get hammered with currency losses when the dollar rallies. Despite their attractiveness as a group, Asia's individual markets can be volatile. For that reason most investors would do well to choose a diversified mutual fund specializing in the region. To get the biggest bang, you'll want ones that exclude Japanese stocks, such as T. Rowe Price New Asia and Newport Tiger. If you're feeling confident about a specific market, there are closed- end single-country funds for individual countries that trade mostly on the New York Stock Exchange. Hong Kong should be a good bet because of its role as the capitalist gateway to an increasingly open China, but since share prices have tripled since 1989, investors will find better values elsewhere. Mark Mobius, manager of the Templeton Emerging Markets Fund, is beginning to eye Korean stocks. Many have tumbled more than 50% from their overblown highs of the late 1980s. He is encouraged by the country's closer ties to North Korea, which could provide cheap labor, and to China, which could become an important market. Avoid the Korea Fund, which trades at a pricey 21% premium to net asset value, but consider the Korea Investment Fund if its 11% premium comes down a bit. Other countries that have ridden out some bumps of late are Thailand and India. Both saw share prices decline earlier this year. Thailand's market reacted to a harsh government crackdown on protesters. The atmosphere is calmer now, but shares still sell for just 12 times earnings. What's more, you can pick up Thai Capital Fund at a 17% discount. Investors' confidence was shaken in India by banking and stock trading scandals. The government is likely to impose tighter controls, and share prices should get a boost now that the stock market has opened to foreign institutional investors. Individuals must still go through the India Growth Fund on the New York Stock Exchange. Also attractive is Indonesia, where the government is working hard at reform. To cut corruption at its ports, the government hired a Swiss firm to conduct preshipment inspections. Shares trade at 16 times earnings, and investors can buy the Indonesia Fund, which trades at net asset value.

LATIN AMERICA -- The professionals may rave about Asia, but no other region can beat Latin America for share price increases in recent years. Impressed with political and economic reforms, investors have driven stocks to spectacular heights. Last year, shares rose in dollar terms 403% in Argentina, 169% in Brazil, 120% in Mexico, and 105% in Chile. Says Baring analyst Terence Mahony: ''Asia was discovered over ten years. Latin America happened in 18 months.'' After such a lightning run, though, share prices have been much more mixed as investors catch their breath. Over the long term there could be more handsome gains. Investors are very confident about Mexico and cautiously confident about the others. Says Michael Bullock, chief investment officer of & London's Morgan Grenfell Asset Management, which tends over $30 billion in assets: ''Mexico is for real. It is so close to the U.S. and has progressed so far socially and economically. The people have seen tangible benefits. We'll have to wait and see about the other countries. Democracy is in its infancy, and the man on the street hasn't benefited much yet.'' One positive sign is repatriation of money by Latin Americans themselves. Mahony of Baring estimates that Mexicans and Argentines have brought home some $5 billion to $10 billion from bank accounts abroad. Says he: ''I've heard of one Swiss banker who's very unhappy.'' More than any other region, Latin America is best approached through a closed-end fund that invests in a number of countries. There are several on the New York Stock Exchange, including Latin America Equity, Latin American Discovery, and Latin America Investment. For investors with strong stomachs, there are also closed-end funds for each country. Chilean shares have been the most profitable, moving up 23% this year. At 21 times earnings, though, they look a bit pricey. So do Argentine shares, which have fallen 35% this year but still trade at a rich 25 times earnings. A better buy is Mexico, where shares have also been falling, partly over concern that Bill Clinton, if elected, might reject the North American Free Trade Agreement. But shares trade at a very reasonable 11 times earnings, and analysts are growing more confident that Clinton would approve some form of Nafta. Plus, analysts expect corporate profits to rise 20% to 25% in each of the next two years. For a diversified portfolio, go with MEXICO FUND, which trades at an 11% discount. The biggest crapshoot is Brazil, where the market plunged recently after corruption charges were leveled against President Fernando Collor. Impeachment proceedings have begun. Barton Biggs thinks the political crisis provides a buying opportunity. Says he: ''You've got to buy markets at the darkest moment -- and this is it. There is no glimmer of hope as to how they're going to get out of the mess they're in. Stocks sell at a 50% discount to book value, and many blue chips sell around six times expected 1992 earnings. At these valuations, I'm willing to go on faith.'' For the daring there are two funds: Brazil and Brazilian Equity, which both trade at about a 5% premium.

CANADA, AUSTRALIA, NEW ZEALAND -- Mention these countries' names, and many investors will think of the troubling inflation they suffered in the 1980s. But the governments have cracked down and today can boast some of the lowest inflation rates in the world -- a little over 2% in Canada and New Zealand and a stunning 0.4% in Australia. However, a lingering recession has kept stock prices down. That smells like a bargain to Gary Brinson, head of Brinson Partners in Chicago. He sees earnings in all three countries rising around 15% over the next year, helped by corporate cost cutting, which has increased profit margins. The most convenient entree is through Alliance Global Canadian, an open-end fund in New York, and First Australia, which trades on the American Stock Exchange at a 12% discount. There is no mutual fund for New Zealand, but a good alternative is Telecom Corp. of New Zealand, the national telephone company. The ADRs trade at a nice southerly P/E of 13.

CHART: NOT AVAILABLE CREDIT: FORTUNE CHART/SOURCE: MORGAN STANLEY CAPITAL INTERNATIONAL CAPTION: LATIN STOCKS HAVE BEEN HOTTER THAN SALSA