(MONEY Magazine) – Growing numbers of American investors are no longer smugly indifferent to the rest of the world. The latest confirmed figures show that in August they poured a record $5.4 billion into stock funds invested overseas. That's triple the funds' monthly take earlier this year and fully 45% of the money that flowed into all stock funds that month. In September, international funds appeared to grab an even bigger share -- up to 70% of cash inflows, based on preliminary data. The impetus to get offshore: Investors' money earned far more abroad this year than at home. Consider: -- International funds as a group returned 25% in the nine months to Oct. 1, reports Micropal, vs. U.S. stock funds' 10%. Leading the rout were funds invested in the Pacific Basin (up an average of 33%), Latin America (22%) and Europe (17%). -- The 335 U.S. stocks in Morgan Stanley's world index of 1,515 firms have gained just 5% since Jan. 1. That's dead last behind the stocks of 22 overseas markets, which collectively climbed 30% in dollar terms. Pacing the heavyweights was Japan's born-again bull market, which was up 46%, followed by Hong Kong (up 36%), Italy (31%), Switzerland (26%) and Germany (23%). -- The world's hottest stock, says Morgan Stanley, is Hong Kong electronics firm Applied International, up 617% since Jan. 1. And the biggest duds? Nine of the world's 20 worst stocks hailed from Wall Street, including U.S. Surgical (down 70%) and Apple Computer (down 61%). Applied, like many global companies, dotes on U.S. investors. Its shares conveniently trade here as ADRs (American Depositary Receipts), as do about a thousand other foreign stocks; its ADR administrator, the Bank of New York, mails out Applied's financial statements on request (telephone 212-815-2122). If you're keen to broaden your profit horizons abroad, begin by weighing the advice of the accomplished foreign-stock pickers introduced below. They will not beguile you with travelogues of faraway bourses. To the contrary, they know that U.S. stocks have been the world champs over the past five years, with the S&P 500 index returning 99%, vs. just 28% for Morgan Stanley's Europe index and a negligible 4% for its Pacific index. Over the next five years, however, overseas markets seem destined to outperform. One reason, argues Peter Lynch, ex-skipper of Fidelity Magellan, is that "stocks outside the U.S. tend to be not as well covered and more undervalued." Today's booming foreign markets also reflect mounting optimism that the global slump in industrial countries will soon be history, unleashing even more capital investment in rapidly modernizing regions like Southeast Asia and Latin America. Thus developing economies should continue to be the most exciting destinations for investors, given those countries' projected real growth of 4% to 8% next year, vs. the 2% to 2.5% recoveries hoped for in Europe, Japan and the U.S. Where to begin? Mutual funds are ideal if you lack the resolve to become fluent in foreign markets. (For information on seven top funds, including those that are managed by our stock pickers, see the table below.) But direct ownership is gaining popularity among seasoned U.S. small investors. At MONEY's request, seven professionals combed their portfolios to recommend 21 top stocks drawn from four timely investment themes. Seventeen of the picks trade as ADRs in the U.S., in most cases over the counter. The four exceptions can be bought on overseas exchanges via big full-service brokers like Merrill Lynch, which has the broadest global research -- on more than 400 foreign firms -- among retail brokerages. (Merrill Lynch, however, imposes a $25,000 minimum on such trades.) The four themes: -- The mother of bull markets. Hong Kong's sizzling stock market -- the best proxy for mainland China's torrid fling with capitalism -- has spurted 19% since Sept. 27. That's when Barton Biggs, Morgan Stanley's influential global guru, proclaimed: "In the next few years China will have the mother of all bull markets. Not only will prices rise several thousand percent, but the supply of stock will double year after year." But foreigners eager for a stake in China's blistering 13% annual economic growth can now buy only the thinly traded B shares in 30 of the 113 companies listed on the fledgling Shanghai and Shenzhen exchanges (locals own the A shares). Therein lies the allure of Hong Kong's diversified trading companies, which are among the biggest venture capitalists in China. Some noted Asian strategists don't share Biggs' fervor (see below). But one who does is Robert Howe, Hong Kong-based co-manager with Benny Thomas of $1.5 billion T. Rowe Price New Asia, up 34% in '93. The fund's three-year return of 80% is among the best for hot Pacific region funds, up 62% as a group. He recommends four trading companies with ADRs among his Hong Kong holdings, the fund's largest allocation at 28% of assets. Next year as a group the foursome figures to rack up an average of 22% earnings growth -- the key gauge of a stock's future appreciation and triple the norm for U.S. stocks. Yet these stocks are priced at 13 times earnings, a 28% discount to U.S. stocks' 18 multiple. They are Hutchison Whampoa (ticker symbol HUWHY, lately $18 a share), a $2.7-billion-a-year conglomerate that's building port facilities in southern China; $1.6 billion New World (NEWDY, $15), active in real estate development in the Yangzte River port of Wuhan, the Chicago of China; $5 billion Swire Pacific (SWIRY, $12), which controls airline Cathay Pacific and a new Coca-Cola franchise on the mainland; and $570 million Wharf Holdings (WARFY, $34), a developer that's also big in Wuhan. Many such deals, however, are threatened by Beijing's inability to douse rampant speculation, corruption and inflation, lately 22%, warns Michael Bunker. He's the London-based manager of Global Asset Management's $35 million GAM Pacific Basin, up 34% in '93 and tops in its class with a five-year return of 118%, nearly double that of his peers. "The government, like the economy, is basically out of control," says Bunker. Since there's no apparent successor to aged leader Deng Xiaoping, 89, Bunker fears investors could soon be blindsided by a power struggle as well as an economic hard landing. So the fund has a scant 4% holding in Hong Kong, down from 28% last year. The urge to splurge. Asia's historically high savings rate and dawn-to-dusk work ethic are the envy of the world. What's often not appreciated, says Bunker, is the fast-growing demand for middle-class trappings -- spacious ^ houses, new cars, vacations and the like. Among the earliest beneficiaries are banks offering consumers their first mortgages, auto loans and credit cards. Bunker's favorite among ADRs is Development Bank of Singapore (DEVBY, $26). The prosperous island nation's richest bank, with $38 billion in assets, is capable of boosting earnings about 20% next year, as are his two other picks. He thinks Malaysia's $630 million Genting Berhad (GEBEY, $11) is a buy both for its Resorts World casino, the country's only legal one, and housing developments. And Bunker recommends direct purchase on the Jakarta exchange of $210 million Hero Supermarkets (lately 9,600 rupiah, or $4.50), Indonesia's dominant chain of modern food stores.

There's also huge pent-up demand from wannabe burghers in neocapitalist Eastern Europe, adds John Horseman, manager of $50 million GAM International in London. He credits his fat returns of 40% in '93 and 119% over five years partly to spotting bargains among European consumer-spending stocks that are too provincial to have ADRs. Horseman recommends three such stocks capable of sterling profit growth averaging 24% next year. Hungary's leading supermarket chain, $215 million Julius Meinl, sells for a forecast P/E of 15 (on the Vienna exchange, 279 schillings/$24). And you'll pay only 12 times earnings on the Zurich exchange for $515 million ceramic tile maker Keramik (645 Swiss francs/$434) and nine times earnings for $280 million roofing firm Sarna (1,420 Swiss francs/$957), both prime suppliers to the rush rebuilding of East Germany's run-down housing stock. And don't overlook similar bargains south of our border, says James Conheady, co-manager with Jeffrey Russell of $343 million Smith Barney International (up 28% in '93) in New York City. Conheady says timely 1990 bets on Mexican consumer stocks like $1.7 billion retailer Cifra -- an almost 1,200% profit realized in '92 -- helped fuel the fund's top-ranked three-year return of 85%, double the norm for its peers. This year, however, Mexico City's market has lagged even that of the U.S. ?Por que? Conheady says concerns are mounting that Congress will reject or further delay the North American Free Trade Agreement. Forecasters contend that the pact, if enacted, could add as much as 1.5 points to Mexico's projected 3.8% economic growth in '94 by spurring rapid job creation. But whatever the outcome, argues Conheady, "the impasse has created great buys on consumer stocks that don't really benefit from NAFTA." Recommended are three ADRs among his Mexican holdings (7% of the fund) that figure to deliver five-year profit growth averaging 23% annually. He likes $560 million soft-drink bottler Coca-Cola Femsa (KOF; $28 on the New York Stock Exchange), a new joint venture of Coke USA and Mexico's beer baron that aims to expand across Latin America. Another pick: Mexico's top commercial TV/ cable network, $1.4 billion Televisa (GRTVY, $54), which owns the world's largest Spanish-language video library. And check out the B stock of $456 million Maseca (GIMBY, $12), a superefficient maker of corn flour that's raised its share of Mexico's tortilla market from 55% in 1988 to 72% today. -- Revenge of the Japanese consumer. The Bank of Japan's easy-money policy has sparked a 26% rebound this year in Tokyo's Nikkei 225-stock index, recently 20,174. But that's still 48% below the market's giddy peak four years ago. And even a rock-bottom prime lending rate of 3.4%, vs. 6% in the U.S., has failed to restart an economy stalled by the strong yen abroad and weak demand at home, says Stephen Silverman, manager of $900 million Merrill Lynch Pacific (up 32% in '93) in Princeton, N.J. During his tenure of the past 10 years, the fund's sumo-size 530% return has been the best in the U.S. after Ken Heebner's hot-handed growth fund, $462 million CGM Capital (546%). Silverman predicts that Japan's new populist government will soon opt to stimulate growth by deregulating the economy and making the consumer king. "But only the strongest, most cutthroat companies will benefit initially," he says. Silverman recommends three with ADRs from his hefty Japanese holdings (65% of the fund). They are $24 billion Ito-Yokado (IYCOY, $203), a general retailer and owner of Seven-Eleven Japan that's the bane of traditional mom- and-pop stores; $6.1 billion Toyo Seikan (TOS, $278), Japan's dominant maker of bottles and cans; and insurer Tokio Marine & Fire (TKIOY, $62), with assets of $38 billion, a leader in auto coverage cushioned by an investment portfolio worth $3 a share. -- Eurobanks on a roll. You don't need an M.B.A. to grasp the profit potential of many European banks, says Richard King, manager of $320 million Warburg Pincus International (up 29% in '93) in New York City. In Europe, King sees a lucrative replay of U.S. banking in recent years: Declining short-term interest rates fatten net margins (the difference between the rates banks pay and charge for funds) and prod bankers to put bad debt behind them. He recommends two traded on the NYSE: Banco Santander (STD, $53), Spain's third largest ($61 billion in assets), and Britain's $217 billion National Westminster (NW, $51), No. 2 in Europe's fastest-reviving economy. Seconding this thesis is Joseph McNay, head of Essex Investment Management in Boston. McNay invests $3 billion for prominent institutions and families -- including Bill and Hillary Clinton (see MONEY's November Newsline). McNay, however, has bet on three German behemoths that trade as ADRs: $305 billion Deutsche Bank (DBKAY, $504 a share), $203 billion Dresdner Bank (DRSDY, $26) and $141 billion Commerzbank (CRZBY, $40). (For more on Deutsche Bank, see Wall Street on page 64.) Why? He says these banks are major shareholders in, as well as lenders to, German heavy industry, another prime beneficiary of lower rates. "If you buy and hold them for a couple of years," adds McNay, "these stocks are bound to be big winners."

CHART: NOT AVAILABLE CREDIT: Source: Micropal CAPTION: The seven wonders of the world Don't feel comfortable buying foreign stocks? Check out these four international and three Pacific Basin funds, ranked within their categories by three-year returns. Six of the funds are managed by the noted stock pickers in the main text. The seventh, T. Rowe Price International, is No. 1 in its group over the past decade.