Across the street from the shabby hotel housing the Shanghai Stock Exchange, two dozen men have gathered to swap gossip about the latest takeover plays. Today, it's the "four small dragons," a group of property and electronics companies whose stock prices have been mysteriously moving up. Is a big speculator trying to make a killing? Who knows? The real object seems to be to get into the stock before the next guy. "I come here to watch the action," smiles Zhang Hui Lang, an economics instructor at Shanghai University. "If I can catch this market, I can make a lot."

With Shanghai up 30% in 1993, Zhang has had ample opportunities to turn a quick yuan. But he's hardly the only Pacific Rim investor making a bundle. With Merrill Lynch & Co. predicting the region will grow a hefty 6.9% in 1994, bourses from Seoul to Sydney are turning in stellar performances. And despite some warnings that the markets are overheated, few analysts seem willing to urge investors to flee.

"ATTRACTIVE." Consider Hong Kong. Despite concerns over Beijing's takeover of the British colony in 1997, the Hang Seng stock index jumped 78% in 1993. Yet the market still sports a 3% average dividend yield, a price-earnings ratio of 17--vs. 20 for the Standard & Poor's 500--and remains Asia's No.1 window on booming China. Indeed, with Beijing's central bankers easing up on efforts to keep China's economy in check, Baring Securities Ltd. strategist Alan Butler-Henderson predicts the Hang Seng may climb 50%, to a record 15,000, as early as mid-1994. "No market anywhere is as attractive as Hong Kong," agrees Clive Weedon of the Nomura Research Institute's local branch. "People who move out will live to regret it."

Weedon recommends Hong Kong-based blue chips that have big deals with Chinese partners. Among his top picks are Swire Pacific, which has teamed up with Chinese investors in real estate, airline maintenance, and ports; as well as financier Li Ka-shing's Cheung Kong Holdings, which has a slew of mainland property and infrastructure deals. Others favor Sime Darby Hong Kong Ltd. The local subsidiary of a Malaysian conglomerate, it owns franchises to sell BMW autos and Caterpillar Inc. tractors in China--and sports an 8% yield.

Some traders prefer to play China by tapping into the flood of new listings hitting the Shanghai and Shenzhen exchanges. Frederick K. Zhang, managing general partner of Boston's Clafin-China Partners, for example, has been buying Shanghai Phoenix Bicycle, which sells at a p-e of 14. He also likes Jinqiao Development, which is opening a vast export-processing zone across the Huangpu River from downtown Shanghai.

The choice of Chinese equities promises to widen even further in coming months. For example, Beijing Jeep, a joint venture with Chrysler Corp. which makes Cherokees in China, may seek to float its shares on the New York Stock Exchange as early as 1994. "You want to try to get your hands on every new issue you can," says Zhang. "The market is hot." As are stocks in Thailand. Although Bangkok's equity market doubled in 1993, Rob Collins, head of research at Bangkok's First Asia Securities, notes that the country's big banks still trade at a reasonable p-e of 12. His favorite: Thai Farmers Bank, the nation's third-largest lender, which expects profits to grow 14% in 1994.

Among other markets benefiting from Asia's growth spurt is Sydney. Tax cuts, a weak Australian dollar, and an upsurge in exports to China and southern Asia are expected to produce better than 3% gross-domestic-product growth in 1994. But despite their 35% rise in 1993, "Australian stocks are still inexpensive," says Brian Sherman, chairman of Equitilink Australia, a Sydney money manager. Sherman has been stocking up on media, engineering, and mining issues. And with cheap money sparking a housing boom, Simon Wotherspoon, a dealer with Macquarie Equities, prefers such mortgage lenders as St. George Bank.

What would it take to throw the Pacific Rim bull market into reverse? Exploding inflation in China--always a lurking concern--might do the trick. So might a rise in U.S. interest rates. But for speculators in the street and traders at their desks, such concerns at the moment seem far away indeed.

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