The Top-Rated Asian Stocks

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On the back of a 130% gain in 2006, China's Shanghai Exchange rose another 97% (in dollar terms) in 2007! Similarly, India's Bombay Exchange had a nice run last year -- it gained 47%.

According to Capital IQ, the best-performing emerging Asia ADRs in 2007 were China Finance Online (Nasdaq: JRJC), China Eastern Airlines (NYSE: CEA), and China Southern Airlines, which gained 392%, 348%, and 219%, respectively.

Investors the world over have wondered whether this type of outsized growth is sustainable. Nowhere, perhaps, is the debate livelier than on Motley Fool CAPS, the Fool's investing community, where nearly 80,000 investors rate their favorite -- and least favorite -- stocks.

Despite the red-hot growth on the other side of the Pacific, only six Asian stocks or exchange-traded funds (ETFs) placed among the top 100 that CAPS investors rated this month.

Moving westward?
While Asian stocks are still generally favored among CAPS investors, stocks from other regions, including Europe and South America, have become more common in the top 100. Investor sentiment may be shifting westward for now, but the growth potential in Asia is still too great to ignore.

Without further ado, here are the top five Asian stocks, according to CAPS.

Company	Country
iShares MSCI Singapore Index Fund	Singapore
iShares MSCI Pacific ex-Japan Fund	Asia-General
The Singapore Fund	Singapore
Internet Initiative Japan (Nasdaq: IIJI)	Japan
Mitsui & Co. (Nasdaq: MITSY)	Japan

Please bear in mind that these stocks are not formal recommendations. Instead, they're offered as jumping-off points for further research. What's more, researching five-star CAPS stocks such as these has proven to be an effective tool for investors.

Time to check out Japan?
For the second month in a row, the iShares Singapore ETF (discussed here) and the iShares Pacific ex-Japan fund held the No. 1 and No. 2 spots. Moreover, The Singapore Fund (a closed-end fund) once again managed to beat out individual Asian five-star CAPS stocks like China Mobil (NYSE: CHL) and Sinopec (NYSE: SNP) -- and by a wide margin.

But this month's surprises come from the Land of the Rising Sun: Internet Initiative Japan and Mitsui. Both stocks finished 2007 with gains, and both are five-star CAPS picks, but that's about where their similarities end.

Internet Initiative Japan is an $820 million Internet service provider that also has its hand in outsourcing services and systems integration. And unlike many of the failed ISPs of the tech bubble, IIJ has generated profits in each of its last three fiscal years. In fact, profits have grown nearly 70% in two years, from $27.1 million in FY 2005 to $46 million in FY 2007. What's more, the company generated $52 million in free cash flow in 2007.

Mitsui is a large industrial conglomerate, similar to 3M (NYSE: MMM) and Danaher here in the United States. Its most profitable business in FY 2007 was its "Mineral & Metal Resources" segment, which, among other things, engages in "trading, investment, logistics management, and transportation services related to iron and steel raw materials."

What do you think? Should investors take a look at these two Japanese stocks, or should they find the next hot Chinese stock? To make your voice heard, join the CAPS community. It's 100% free, and we want to hear from everyone.