(FORTUNE Magazine) – Investing in emerging markets in the 1990s required great fortitude--and a crate or two of Rolaids didn't hurt either. Betting that the small, emerging economies around the world would produce outsized results, investors sank gobs of money into emerging-market mutual funds and the stocks and bonds of fledgling companies. Unfortunately, most investors never saw their bets pay off. Instead, they were reminded of what the word "volatility" means as waves of economic, political, and market crises swept from region to region during the decade, from Southeast Asia to Russia to Latin America.

We wish we could say things were different now. But we can't. Huge debt burdens, questionable corporate-governance laws, wobbly governments, and even in some cases high inflation make many countries just as dangerous for investors now as they were in the previous decade. Plus, there are new risks. Fears over increased instability in the Middle East, global terrorism, the growing nuclear threat from North Korea, and the rapid, uncontrolled spread of a new and lethal virus threaten to cripple economic growth in some regions and continue to keep many investors at bay.

That said, there's probably never been a better time to invest in emerging markets. Why? For one thing, all the high expectations and irrational investor exuberance for developing economies have been pretty much wiped out. As a result, right now emerging-market stocks trade at half the price/earnings ratio of the S&P 500. Plus, the governments and corporations seeking investment from the developed world learned their lesson from the 1990s as well--if they don't follow the rules, foreign investors don't want to play. "The economies of the emerging markets have improved substantially since the Asian crisis [in 1997] and the Russian crisis [in 1998]. They've really gotten their economic houses in order," says Sam Wilderman, manager of the GMO Emerging Market fund, which is up 10% this year. "But they're still trading at their lowest valuations in the last decade."

Furthermore, while there will be hiccups, the economic growth rates for most emerging economies are well above those of their developed counterparts. The gross domestic product of the U.S. is expected to increase 2.2% this year and about 3.6% in 2004. But the GDP of South Korea is growing at about a 5% clip, India's economy could expand about 6% next year, and China has been growing at upwards of 7% (although economists now say that severe acute respiratory syndrome, or SARS, could clip 2% from its GDP growth this year). Those growth rates, combined with vigilance by many countries against inflation and the potential for falling interest rates in several regions, haven't gone unnoticed by some investors. So far this year, Israel's Tel Aviv 100 index is up 30%, and the Prague Stock Exchange has climbed 21% over the past year on expectations that the Czech Republic will join the European Union in 2004. But money managers insist there's much more upside ahead in several international markets. The Institute of International Finance forecasts that capital flows to emerging markets could hit $139 billion this year, up from 2002's $110 billion, which was the lowest total in a decade. "This asset class has been largely ignored in recent years," says Josephine Jimenez, senior portfolio manager for Wells Capital Management. "There is a rally pending in the emerging markets, and I think we're just at the start of it."

So FORTUNE decided to do some global bargain-hunting. We talked to money managers and strategists to identify regions that have been pounded by nervous investors and may have bottomed out. The experts gave us four countries to consider: Brazil, India, South Korea, and, yes, China--surgical masks notwithstanding. We then pressed our experts to dig up world-class companies trading at bargain-basement prices. All our stocks are listed in the U.S. as American depositary receipts, which means they're easier to trade and follow U.S. accounting standards. The trick in investing in any of these volatile countries or stocks is to think small. An aggressive allocation for the emerging markets is about 5% of your portfolio assets. So for those with iron stomachs, let's get started.

Brazil

Investors had very low expectations when Brazil's new President, Luiz Inacio Lula da Silva, popularly known as Lula, was elected last fall. The former metalworker and union leader won a landslide victory last year for the left-wing opposition Workers Party by promising more controls on foreign capital and a departure from Brazil's economic model. Fearing Lula would abandon free-market policies and potentially trigger a default on Brazil's massive debt, foreign investors ran for the exits. Brazil's stock market fell by almost a fifth.

But Lula shocked investors. Since taking office in January, he has pledged to maintain monetary policy and fiscal stability. He's also looking to continue battling against Brazil's double-digit inflation rate. That was just what investors needed to hear. So far this year the Brazilian stock market has surged 19%. Despite that rebound, the average P/E ratio hovers at seven times projected 2003 earnings.

Another focus for Lula is to increase Brazil's exports; one company that could benefit is Cia. Vale do Rio Doce (RIO, $30). The world's largest iron-ore miner, CVRD posted a 29% surge in first-quarter net profit this year, vs. a year ago, on a 17% jump in sales. Demand for CVRD's iron ore--used to make steel--is surging, and the company plans to invest $500 million over the next few years to expand its mining capacity and transportation infrastructure. Where is that iron ore going? China purchased 20% of CVRD's exports last year and is expected to import even more this year. "China is opening up its auto sector, and that could lead to a significant demand for steel," says Wells Capital's Jimenez. "We expect to see about a 30% increase in the share price."

But not all of Brazil's future economic growth will be exported. Some of it will be consumed at home--by beer drinkers. Brazil boasts the world's No. 5 brewer, Cia. de Bebidas das Americas, better known as AmBev (ABV, $20). AmBev controls nearly 70% of Brazil's beer market with the top brands Skol, Brahma, and Antarctica. While the company has been able to pass along inflationary increases to the consumer, it hopes to further boost profits by tapping into the mar-ket for premium beers. "AmBev has the dominant beer franchise in Brazil, and it's the sole distributor of Pepsi in the country," says Ken Chiang, a senior portfolio manager at Merrill Lynch Investment Managers. Shares of AmBev have jumped 33% this year, but it still trades at just 12 times next year's projected earnings and currently pays a dividend yielding 2.6%.

India

A little over a year ago India appeared to be on the brink of disaster, flexing its military muscles as tensions flared with neighbor--and longtime adversary--Pakistan. The saber-rattling even included not-so-veiled threats of nuclear aggression. Tensions between the two have cooled somewhat, and now all that India would like is some rain. Agriculture makes up about a quarter of the country's economy, and the region just suffered its third drought in four years. That curbed India's growth rate this year to around 4.4%, from the 6.5% once expected. Even if the weather isn't cooperating, it is raining jobs in India. Now that relations with Pakistan have improved, U.S. companies GE Capital Corp. and American Express have been shipping jobs to India in droves. Besides call-center positions, U.S. companies are now having stock analysis and accounting done overseas.

Those jobs are helping create a wealthier workforce, which is seeking more sophisticated banking options. That's an opportunity for HDFC Bank (HDB, $17), which is bringing U.S.-style consumer-banking products and corporate lending strategies to the country. Led by a former Citigroup banker, tech-savvy HDFC provides credit cards and wealth-management services to the retail sector. Next up it plans to offer home mortgages. "They have management that spent time with large multinationals," says Merrill Lynch's Chiang. "They're not trying to reinvent how things are done but simply to identify business practices and franchises that are successful in the developed world and bring them to India."

South Korea

Koreans have good reason to feel nervous these days. Between North Korea's revving up its nuclear facilities and the rapid spread of SARS curbing exports to its biggest trading partners, China and Hong Kong, South Korea's economy was bound to take a hit. In the first quarter of this year its economy shrank, for the first time in two years--by 0.4%.

The slowdown in the economy caused Korean stocks to drop about 3% this year. But if you believe--as many do--that the situation with North Korea will be resolved peacefully and that SARS will eventually abate, there are some top-notch companies selling at bargain-bin prices, say money managers. One such company is Posco (PKX, $22), the world's second-largest steelmaker. Earlier this year Posco CEO Yoo Sang-boo resigned amid charges that he had misused company funds to make investments in a betting operator. But analysts say there are no overhanging accounting issues, and the scandal won't affect the company's business. "Posco is the lowest-cost steel producer in the world. This company makes a ton of money in boom years, and while others bleed in trough years, it still produces positive income," says Aquico Wen, managing director and head of emerging-market equities at Citigroup Asset Management. "This is a high-quality company that is trading with a P/E ratio of 5.5 times 2004 earnings." At that deep discount, Wen estimates that the stock could double over the next year or so.

China

Early this year forecasts for China's explosive growth were startling. How much so? Within four years the country was expected to overtake France and Britain to become the world's fourth-largest economy. Indeed, China's GDP expanded in the first quarter at its fastest pace in seven years--a 9.9% increase over the prior year. SARS could bring that growth to a dramatic halt. But some investors say China's long-term-growth story is still on track. "There's no question SARS will have an impact on overall growth in China, but I don't think it will be so significant that it will devastate the economy," says Merrill's Chiang.

Indeed, other money managers say they have used the pullback in Chinese stocks to add to their portfolio. Even Warren Buffett recently put money into the country through a Berkshire Hathaway investment in its No. 1 oil producer, PetroChina. One company investors should look at is China Unicom (CHU, $6). The stock has plunged about 40% in the past year as wireless competition in China heated up, and more recently on fears that SARS would curb consumer spending, particularly for China Unicom's premium-service network. But that means new investors can pay just 9.2 times next year's expected earnings and get a dividend yield of 2.2%. "There's been a temporary depression in the mobile market," says Wen. "But we see earnings growth of 20% for the company in 2004 and 2005." And for emerging-market investors, that kind of return could pay for a lot of antacids.

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