(FORTUNE Magazine) – "I knew nothing about Asia," says Laura Luckyn-Malone of her undergraduate days at Cambridge University, where she studied classics and law. What a difference two decades make: Now 42, she has become expert enough to oversee $3.5 billion in Pacific Basin investments for Schroder Capital Management International in New York City. Before joining the firm, Luckyn-Malone ran the Japan fund for Scudder Stevens & Clark. From 1986 through 1989 she achieved spiffy returns of 31.3% on average annually. In 1990 she moved to Schroder, where she began managing institutional accounts. In December 1993 she launched the closed-end Schroder Asian Growth fund. From 1994--a tough year for Asian markets--through the present, the fund's net asset value fell 5%, vs. an average decline of 10% for other Pacific funds. At a price of $11.25 a share, the fund is selling at a 15.5% discount to its NAV on the Big Board. Luckyn-Malone recently spoke with FORTUNE's Antony Michels.

Japanese stocks have taken a beating this year. Are you finding any bargains?

I'm very cautious in the short term. I've reduced Japanese stocks to 11% of assets, from above 30% in June 1994. At the right price I would add a bit back, but today the stock market is not rewarding companies that are restructuring and delivering higher profits. There's no reward for being heroic.

I see Hong Kong stocks are 18% of your portfolio. Are you bullish?

The market is up 34% since January, rising from nearly 7000 to 9363. But will it regain its January 1994 high of 12000? I say absolutely not. Corporate profit growth won't be as fast in the future as it looks to be elsewhere in the region. I'm being very selective. I want companies that understand that being part of China is an opportunity to make money. One is Hutchison Whampoa, a conglomerate that operates Hong Kong's port, one of the most efficient in the world. I believe China's future economic development will be regionally driven, meaning there will be a series of key ports all the way up the Chinese coast for Hutchison to develop. Its stock trades at 14 times esti mated 1996 earnings, a ratio close to its future rate of earnings growth.

What about investment opportunities inside China?

Last year was absolutely appalling for investors in China. Now that the worst is over, I have bought some stocks that were hammered too hard. China is about 4.5% of the fund's assets. I recently bought the American depositary receipts of Huaneng Power, which trade on the NYSE. Huaneng produces power from coal and is located, appropriately, where there's lots of coal. China cannot grow at 10% a year unless it installs adequate power supplies. At $19.63, the ADRs trade at a P/E of 6, based on this year's earnings estimates. I think earnings can grow 50% next year. The stock looks cheap.

Emerging markets account for 40% of your fund. Which countries look best now?

In addition to China, I think there's an extraordinary opportunity in India, where I have invested 6% of the fund. I like the way companies in India are managed. The government's liberalization program is dismantling import restrictions, allowing Indian companies to procure more easily the capital equipment needed to modernize. Investors have to be careful, though. Recently a state government canceled a power plant deal with Enron. That deal was flawed because it was not competitively bid. In the future, foreign bidders should have clearer guidelines.

Name a good Indian stock that you own.

One company I like very much is Bajaj Auto, a large manufacturer of two- and three-wheeled vehicles. Bajaj exports mopeds to Italy, and since Italians are the most picky, fashion-oriented consumers that I know, this company must be doing some thing right! When I looked at the balance sheet I thought Bajaj was the Toyota of India because of its large cash war chest. The global depositary shares [traded on European stock markets, similar to ADRs in this country] are very cheap. They trade at 16 times next year's earnings estimate, and I expect earnings to grow 40% next year. [There are four closed-end India funds that trade on the NYSE.]

Do any other markets look cheap now?

Korea is another market I think is attractive. I own the ADRs of Pohang Iron & Steel, which trade on the NYSE. Korea continues to build up its infrastructure, and as we saw with that terrible department store collapse, it hasn't always used the highest-quality materials. There's going to be a lot of rebuilding, which will benefit companies like Pohang. Its ADRs trade for $30.63, 14 times next year's earnings estimate. Earnings growth should be about 16% a year for the next five years.

Another company with an ADR I like is Indonesian Satellite, which provides international telephone communications service in Indonesia. The ADR trades at about 18 times 1996 earnings estimates. Earnings growth will slow next year to 15%, as the company upgrades equipment. But starting in 1997 I expect profits to accelerate 25% annually for the foreseeable future.