(FORTUNE Magazine) – After six years of false starts, hardship, and loud public skepticism, Central Europe's three main economies have emerged from the Russian bear's shadow and look sustainably bullish. The Czech stock market has returned 25% so far this year, while in Hungary and Poland the markets have about doubled. Supported by companies and economies that are restructuring and growing stronger, these markets have matured past the wild run-ups and alarming nosedives of 1993 and 1994, when speculation alone drove them.

With consumer spending rising and inflation coming down, much of these countries' debt has been deemed investment grade. "Central Europe has turned the corner," says William Sterling, co-head of international equities at BEA Associates. "The economies have stabilized, growth rates are sustainable, and valuations are attractive." Heinrich v. Pierer, chief executive of Siemens AG, a German electronics manufacturer with some 3% of its business there, concurs. "Middle Europe will be a part of the European Union--it's just a matter of when."

More than half the area's trade is now with the west, so just how irrelevant has Moscow become? The stock markets have been normal throughout the Russian elections, and even without a clear Yeltsin victory they saw modest gains the day after the first round of voting. "Look at the fundamentals," says Arpad Pongracz, a native Hungarian who runs Vontobel's Eastern European Equity fund. "I can't envision a situation in Russia that would affect these economies today."

The Vontobel fund (800-527-9500) is a pure Central Europe play for U.S. investors. The open-end fund launched in February and is now 88% invested, with 61% of its assets in Poland and Hungary, where so-called austerity measures, implemented in the early to mid-1990s, shocked the economies into shape. In Poland, for example, the zloty was devalued, consumer spending all but stopped, and unemployment burgeoned in the wake of privatization. But now comes the payoff: This year, Poland aims for inflation below 20%, down from 1994's 30% rate, and sustainable 5.5% GDP growth.

Hungarians, still a few years behind the Poles, continue to support a socialist-led government. But even under that system, more than 70% of business is privatized, and Hungary lures fully half of the foreign money coming into Central and Eastern Europe.

The enigma in the triad is the Czech Republic, which emerged from the Cold War fairly industrialized and with a strong balance sheet. The new government privatized all business in one swoop and left it to the marketplace to sort good from bad. That hasn't happened yet: Fund managers estimate that of the 1,900 or so companies on the Prague exchange, maybe 200 are solid. The rest will saddle local banks with bad debt until they are bought out or forced into the untried bankruptcy system. "The Czechs think they've skated past the hard part and are a little too smug about it," warns John Abbink, who until recently managed Deutsche Morgan Grenfell's Central European Equity fund. "They might get through it just fine," he says. In the meantime it takes savvy and diligent stock picking to profit in Prague.

One manager who has been having some success is Pierre Daviron, who runs Oppenheimer Capital International's Czech Republic fund. The fund trades on the NYSE at a 6.8% discount though it has returned 37% so far this year, ahead of the broad Czech market index's 25%. Daviron believes one ace the Czechs hold is a shared border with Germany, where wages are ten times higher and companies are trying to slim down. Says Daviron: "The restructuring in Germany plays right into Czech hands. The Germans close their shops and go across the border"--bringing technology, capital equipment, and jobs along with them.

One American company making inroads across the region is Central Europe Media Enterprise (CETV, Nasdaq), a Ronald Lauder venture that's buying up licenses for television stations in Germany as well as Central and Eastern Europe. Down from its 52-week high of $30, at $24.25 the stock is a good long-term bet on rising consumer demand, which should in turn drive advertising revenue.

ABB Asea Brown Boveri, a Swedish-Swiss global engineering firm, is also an interesting play. It has 5% of its business in Central Europe, and plans to double that by 2000, says Bradley Dewey, a Donaldson Lufkin & Jenrette analyst. The joint venture's Swedish half, ABB AB, trades as an ADR on Nasdaq (ABBBY). It was recently at $105, just off a 52-week high of $106.75.

--Eileen P. Gunn