(FORTUNE Magazine) – It's an investor's fantasyland. From Indonesia to South Korea, Asia's economies are growing an average of 7% a year, roughly three times as fast as Europe or the U.S. Growth should stay high because the region's workers save more than Westerners and toil longer hours. Household incomes are profit- perfect: high enough to encourage mass consumption but not so high that labor is too costly. Stocks traded in Asia typically show price/earnings ratios 25% to 50% below those of the U.S. And Asian stocks don't represent much currency risk: The Hong Kong dollar is pegged to the U.S. dollar, and other currencies tend to follow it as well. What more could an investor ask? Returns, maybe. Pacific mutual funds returned a negative 3.6% a year over the past three years, according to Morningstar, a Chicago rating service. That's enough to scare most investors into staying stateside. But it need not. Most Pacific funds load up on stocks from Asia's biggest and baddest market, Japan. Since 1989 the Nikkei index has lost 53% of its value. But other exchanges in the region have thrived: The Morgan Stanley combined Far East index that excludes Japan returned an average of 12.6% annually over the past three years. Now open-end mutual funds are popping up to let U.S. investors in on the action. The oldest, Newport Tiger, lost 15% in 1990 and returned 26% in 1991 and 22% last year. (Tiger is a metaphor for Asia's growing economies; many Asians who associate tigers with predation prefer the dragon.) For two years the T. Rowe Price New Asia fund has mixed bets on dragon economies with investments in tamer Australia and New Zealand. It returned 19% in 1991 and 11% in 1992. Newport Tiger founder and manager John Mussey expects to deliver a return of around 20% again this year. He says: ''The equity markets in Asia are undervalued. Stock prices haven't caught up with the earnings growth.'' The Hong Kong market, where almost half his portfolio is invested, trades for a P/ E of only 11. The Thai market's P/E is just 14. Many managers believe the greatest opportunities are in China, particularly Guangdong, the nation's rapidly developing southern province. The easiest way to bet on that market is to buy shares in Hong Kong companies. Robert Lloyd George, chairman of Lloyd George Management in Hong Kong and adviser of the Eaton Vance Greater China Growth portfolio, has fully 44% of its assets in the Hong Kong market. He looks for companies that stand to benefit from a China consumer boom. His picks include Giordano Holdings, a casual clothing retailer that is opening outlets in Guangdong, and C.P. Pokphand, which sells chickens and motorbikes to the Chinese. But China is also the region's biggest risk. It has the ills of an emerging market, giant-size: an unpredictable government and an economy that could overheat. Peter Soo, manager of the Van Eck Asia Dynasty fund, is selling some Hong Kong stocks because of the friction between the colony's governor and Beijing. For now, he prefers Singapore and Thailand, where earnings growth rates are less clouded by political uncertainty. Kara Tan Bhala, manager of the Merrill Lynch Dragon fund, worries that China's inflation rate, now more than 10% in urban areas, could spiral. She likes Thailand and Malaysia, where inflation is not such a threat. Her fund, launched in May 1992, has attracted so much money that it is temporarily closed to new investors. To get a piece of Asia, investors must pay sizable fees. The funds have expense ratios of around 2%, compared with 1.36% for the average U.S. equity fund, and all except New Asia carry sales loads. But investors may find both the volatility and the cost of Asia funds worth shouldering. As the dragon economies progress from ''emerging'' to ''mature,'' the price of entry into their markets will only climb.

CHART: NOT AVAILABLE CREDIT: FRANK O'CONNELL FOR FORTUNE/SOURCES: FUND PROSPECTUSES CAPTION: FIVE WAYS TO SKIN A DRAGON Funds are popping up to invest in Asia's economies. In the past 12 months, Newport Tiger returned 22%; T. Rowe Price New Asia 15%.