What used to be thought of as “emerging markets” now look like submerging ones. In Asia, the newly developing countries drowned in their own success.

Their 13-year economic boom blew up last year, due to wasteful capital investments, overcapacity, government meddling and inefficient market controls. The dimensions of their tragic bust, and the hardships ahead for their populations, haven’t been seen in modern times.

“This is beyond the worst scenario on our economic model,” says Adam Posen of the Institute for International Economics in Washington, D.C.

If you own an emerging-markets mutual fund, you know what he means. These funds buy the stocks of companies in the volatile new markets of Asia, Eastern Europe, Africa and the other Americas. On average, they tumbled 36 percent over the past 12 months, according to Lipper Analytical Services.

And that’s the good news. Funds invested solely in the countries of the Pacific Rim plunged 61 percent. Markets in Thailand, South Korea and Indonesia stand near 10-year lows in dollar terms. Caught in the downdraft, Latin American funds gave up “only” 31 percent. To money managers, it felt like a financial version of Omaha Beach.

So why is Adam Posen smiling? “There’s more hope that Japan will change policies now than at any time in the past three years,” he says and Japan is a big engine of growth. Korea and Thailand may be stabilizing now, thanks to their close work with the International Monetary Fund (a global safety net, unreasonably maligned).

A majority of the analysts I spoke with last week described the Asian markets as “somewhere near the bottom” or “in the end stage of the downturn.” Not a ringing endorsement, but better than “ugh.”

“We’re getting a lot of interest from institutions,” says Vincent McBride, who runs the Warburg Pincus Emerging Markets Fund.

Before going further, this caveat: Anyone who talks or writes about an Asian turnaround runs the risk of looking monumentally dumb.

Hope of an upturn isn’t proof. The markets aren’t crazy about Keizo Obuchi, the new Japanese prime minister. They fear that he won’t be able to make needed economic changes fast enough, or that if he tries the policies won’t work. “This is a show-me situation,” says McBride.

“But markets turn around before economies do,” says Allen Sinai, chief global economist for Primark Decision Economics in New York. Sinai thinks that aggressive dice-rollers might want to tiptoe into Asia now (he suggests that the rest of us hold off for at least six months).

Analyst Larry Jeddeloh, editor of The Institutional Strategist in Minneapolis, made a big bet on Japan last month.

To Mark Madden, who runs the Pioneer Emerging Markets Fund, the region’s good stocks look irresistibly cheap. “A lot of Western companies are buying assets there, knowing those economies will be back on the growth track in five years’ time,” he says. As investors return, Asian currencies will rise. You’d profit from gains in the currency and the stocks.

Fund managers seem generally comfortable with Latin America; positive about emerging Europe (Poland, Turkey, Portugal, Greece); trusting about China; skeptical of Russia. (One manager described Russia as “Indonesia with nukes.”)

But even if the worst has passed for emerging-market funds and we don’t yet know they’re no place for people near retirement or investors who anxiously watch their money every day. Slip into something more comfortable, like Europe, where the past 12 months saw the average fund rise 26 percent.

But don’t you wish you’d bought Europe back when it was cold?

Aren’t you sorry you blew into emerging markets at their peak in 1994? Since the end of the Mexican peso crisis in the spring of 1995, the best-known index of Latin American stocks is up 66 percent, Madden says, even factoring in the losses of 1997-98.

If you’re game to gamble 5 percent or 10 percent of your money, consider emerging-market funds that invest all over the world. Those managers were free to buy Eastern Europe last year, while narrow Asian-fund managers had to keep buying stocks that were overpriced.

Or choose a general international fund that gives you industrial countries plus an emerging-markets tilt. The T. Rowe Price International Stock Fund keeps 10 percent to 15 percent of its money in the developing world.

Of course, I might be whistling past doomsday. Any analyst worth his bonus can spin Armageddon in one minute flat starting with an unstoppable Japanese decline. But Japan smells the smoke. Why would it choose to die on a burning deck? Investors looking for value at least have to take a look.

Safety valve

Worried about stocks? Have some money you’d like to keep absolutely safe? The federal government has just provided small savers with another choice.

You can now buy short-term and intermediate-term Treasury securities for as little as $1,000. Formerly, you needed $5,000 or $10,000 to play.

Longer-term securities maturing in five years and up were already available for $1,000. But savers don’t always want to lock up their money for that long a time. Now, you can use Treasuries for your shorter-term savings, too.

That is, if you want to. The interest rate on Treasuries is generally similar to what you can earn on comparable bank certificates of deposit. Most banks pay a little bit less on small CDs; a handful pay a little bit more.

Treasuries have an edge in any state that levies its own income tax. Interest on bank CDs is fully taxable. Interest on Treasuries is exempt from state and local tax. You owe only a federal tax.

Nevertheless, the difference between what you earn in Treasuries and CDs is pretty small, in dollar terms, on a $1,000 account. When talking about a safe place for modest cash savings, convenience is the thing you’ll want to consider first.

The best way to buy Treasury securities is to open a Treasury Direct account. You can do it by calling or visiting any Federal Reserve bank or branch (check the phone book under “Government Listings” or try the information operator in the nearest major city).

You can also call the automated answering system at the Bureau of the Public Debt at 202-874-4000 (punch 1, then 241 for the documents you need to open an account). Or download the documents from the Internet at www.publicdebt.treas.gov.

There are no fees for opening this account. When you buy securities, no commissions are charged.

Syndicated columnist Jane Bryant Quinn can be reached in care of the Washington Post Writers Group, 1150 15th St., Washington D.C. 20071-9200.