Hot Prospects or Too Hot to Handle?

After the financial fires that swept across East Asia, investors might be tempted to sort through the rubble to find hot companies at firesale prices.

But be careful, say experts, some smoldering relics are still too hot to handle.

"It's hard to determine whether the companies are on the way out or just severely undervalued," says Joshua Feurerman, manager of the Emerging Markets Fund at State Street Global Investors in Boston.

Long-term investors intent on hazarding the risks can avoid portfolio burn through a regional mutual fund or a fund devoted to promising single countries.

But prepare to hold on for at least five years. "These are investments that will eventually do very well, but there will be lots of ups and downs," says Ruth Fishbein, of Salomon Smith Barney in New York.

Regional funds have all stumbled in the past year, but while some have been knocked prone, others are simply on their knees. Among the latter: Van Eck Asia Dynasty A (800-826-2333), off 47 percent in the year ending July 1; and Phoenix-Aberdeen New Asia (800-243-4361), off 43 percent over the same period.

Single-country funds pose more risks because they put all their eggs in one economy, but analysts say a few pegged to Asian economies look more resilient than others:

The Philippines, long the "poor man" of Asia, has not overreached itself with the short-term loans that hurt other countries. Investors dumped Philippine stocks and currencies along with those of the rest of the region. But its banks are better regulated, and the economy benefits from a decade of reform. "We are overweight on the Philippines," says Mr. Feurerman. The closed-end First Philippine Fund (New York Stock Exchange) is one way to play the island nation.

South Korea has moved to cut "crony capitalism" and market controls. And it's been hurt more than other Asian markets. But some analysts question whether it can go far enough in streamlining and breaking up its huge chaebol conglomerates, many of them dramatically overextended.

Four mutual funds offer pure plays in Korea. Matthews Korea, an open-ended fund, lost 3.8 percent in the year through July 1 (800-789-2742). Three closed-end funds trade on the New York Stock Exchange: Korea Fund (ticker symbol - KF), Korea Equity Fund (KEF), and Korean Investment Fund (KIF).