The success of these markets rests on privatization and growth. Governments are easing their iron grip on foreign investing just as their ambitious young workers are reaching out for a better life. The Templeton Emerging Markets Fund-the trailblazer in its field-earned 31.4 percent annually over the past five years, 30.5 percent over three years and 14.7 percent in the past 12 months.

Most of the funds that buy into these markets are “closedend.” They raise a pool of investment capital by selling a fixed number of shares-just as if they were new companies going public. The fund is then listed on one of the stock exchanges. To buy or sell shares, you call up a stockbroker.

The price is set by supply and demand. As an example, take the Templeton fund. At the end of last week, its “net asset value” (the net value of the shares in its portfolio) stood at $15.25 per share. But optimistic investors had bid the price up to almost $18. Funds selling for more than their net asset value are said to be trading at a premium. By contrast, the Irish Investment Fund, with a net asset value of $8.84 per share, sold for only $7.75. Funds selling at less than their net asset value are said to be at a discount.

In most cases, you should buy closed-ends only at a solid discount, says Miami analyst Thomas Herzfeld. Such funds are often ripe to rise. By contrast, funds selling at premiums (like Templeton Emerging Markets) are probably riding for a fall. The discounted funds that Herzfeld currently likes: First Iberian, Irish Investment and the Mexico Fund. A typical strategy is to buy when the discount is wide and sell when it narrows. Herzfeld likes Irish Investment at its current 12 percent discount and will sell if the discount shrinks to 5 or 6 percent.

Of some 40 closed-end emerging-markets funds, most concentrate on a single country. You need a steel gut for that kind of play. The Emerging Mexico Fund, for example, ran up 50 percent in February 1992, then lost 43 percent of its altitude over the following 15 weeks. For a quieter life, stick with diversified funds-either regional (like a Latin American or Asian fund) or global.

Recently the traditional “open end” funds have also been pushing into emerging markets. Unlike the closed-ends, which sell on stock exchanges, open-end funds stand ready to buy and sell shares, at net asset value, at any time.

The 19-month-old, open-end Templeton Developing Markets Trust-run by Templeton’s talented new-markets manager, J. Mark Mobius-buys the same companies as its closed-end cousin and currently sells at a relatively better price per share. It’s bought through stockbrokers and financial planners, and carries a sales load of 5.75 percent. Mutual-fund analyst Eileen Sanders at Morningstar, Inc., also likes the new G.T. Global Emerging Markets (4.75 percent sales load) and Merrill Lynch Developing Capital Markets (4 percent load). Merrill leans more toward Southern and Eastern Europe than its competitors. Govett International Emerging Markets (5 percent load), this year’s top performer, holds 70 percent of its assets in the Pacific region.

An extra risk of an open-end fund is that, in a panic, investors will try to cash out all at once-and in these markets, stocks aren’t always salable in a hurry. Your best strategy: invest regularly, for an average of the fund’s high and low prices over time, and hold for at least five years.

More conservative investors might consider the broadbased international and global funds that hold significant stakes in emerging markets: among them, the no-load (no sales charge) Acorn International in Chicago (800-9226769), Harbor International in Toledo, Ohio (800-422-1050), and Scudder International in Boston (800-225-2470).

Of all the world’s markets, Asia remains the most popular, fueled by booming intraregional trade and China’s dynamic growth. Still, the proliferating China funds look like too much of a good thing, says Mehran Nakhjavani of the International Bank Credit Analyst in Montreal. Worldwide, there are some 35 of them. The money they’ve funneled into China’s new markets has raised the sort of euphoria that will almost certainly end in tears. For companies doing business in China, Hong Kong remains the major play, with South Korea, Malaysia and Taiwan as the runners-up. For regional diversification, look at no-load T. Rowe Price New Asia or Newport Tiger (5 percent load).

What can go wrong in the world’s most exotic marketplaces? Madhav Dhar, manager of the closed-end Morgan Stanley Emerging Markets Fund, starts with “coups, floods, bombs going off,” to which one might add corruption, volcanoes, assassinations, inflation, fishy financial statements and-most important–stock prices that are already high. But developing countries are growing two or three times faster than everyone else. As long as their governments continue to liberalize, they’re a worthy five-year bet.

Looking for a ride on the wild side? Try diversified mutual funds that invest in developing countries. They’re outgunning the average stock mutual, by far.

TOTAL RETURN 1993* 1992 Govett Int’l Emerging Markets 19.2% n.a. Templeton Developing Markets 18.7% -9.8% Merrill Developing Capital Markets 12.9% .8% G.T. Global Emerging Markets 9.7% n.a. Lexington Worldwide 7.2% 3.8% All equity funds average 5.0% 6.0%

*THROUGH 5/13/93.