(FORTUNE Magazine) – Looking for a good mystery story? Try the Asian stock markets in 2003. A deadly virus, SARS, virtually shut down business in the region for months, and terrorism jitters ran high, yet Asia's 16 major exchanges rose an average of 40%. The apparent exception to this positive trend? China. Despite the region's most vibrant economy, its domestic market was a comparative dog. Just what is going on?

The fact is that beneath the scary headlines, a lot of things went right for Asia last year. Indonesia benefited from high prices for commodities it sells like gold, oil, and timber. Thailand, the region's hottest market, saw its economy surge thanks to strong exports (particularly to China) and a consumer boom. India used its vibrant tech sector to capitalize on a more welcoming attitude to foreign capital. And many analysts think that Japan's economy is beginning to turn the corner.

As for China, the relatively poor performance of its small domestic market is deceptive; only countries not ready for prime time list at home. Outside China, where the good companies go, Chinese stocks were star performers. In fact, the world's largest IPO in 2003 was the December offering of China Life (LFC). "I believe in China," says Sam Baker, director of Asia research at Trans-National.

The good news for investors is that 2004 looks promising for Asia too. What's the best way to get in? First, remember that investing anywhere in Asia with a short time horizon is a bad strategy; diversification and patience are key. To bet on China you can invest in a straight China mutual fund, which typically includes Chinese companies and those that invest in the country. The Matthews China Fund (MCHFX) has the best five-year average total return (17.7%), according to Lipper. For Southeast Asia, Matthews Asian Growth and Income (MACSX) leads Lipper's list, and the DFA Pacific Rim Small Company (DFRSX) fund is another standout.