Following a tremendous streak of double-digit annual returns, the Chinese and Indian stock markets have hit a speed bump so far in 2008. As of April 30, China's Shanghai Exchange was down 28%, and India's Bombay Exchange had given up 17% for the year, in dollar terms.

It's been a pretty bad year across the board for the two emerging-market darlings. According to Capital IQ (a division of Standard & Poor's), 92 of the 119 Chinese and Indian stocks that trade on major U.S. exchanges are down in 2008. Those hit hardest include Harbin Electric (Nasdaq: HRBN), Trina Solar (NYSE: TSL), and Aluminum Corp. of China (NYSE: ACH) -- three stocks that had all more than doubled in the previous year.

Investors worldwide must be wondering whether this is a sign of things to come for stocks in these emerging Asian giants. Nowhere, perhaps, is the debate livelier than on Motley Fool CAPS, the Fool's free and open investing-intelligence community, where more than 100,000 investors rate their favorite -- and least favorite -- stocks.

Moving westward?
Even though stocks from other regions, including Europe and South America, have become more common among the top 100 rated CAPS stocks, Asia's growth potential remains too great to ignore.

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

Company

Country

Templeton Dragon Fund (NYSE: TDF)

Closed-End Fund

iShares MSCI South Korea Index (NYSE: EWY)

ETF

Mahanagar Telephone (NYSE: MTE)

India

iShares MSCI Singapore Index

ETF

Internet Initiative Japan

Japan

Source: Motley Fool CAPS, as of April 25, 2008.

Please bear in mind that these stocks are not formal recommendations. Instead, we offer them as jumping-off points for further research. Researching five-star CAPS stocks such as these can be an effective tool for investors.

Scorching-hot telecom
Last month, it was Telkom Indonesia that got good reviews from CAPS investors. This month, India's Mahanagar Telephone gets the spotlight. Most of the bullish arguments for Mahanagar are similar to those for PT Telekom -- namely, low market penetration in a vast, untapped cellular consumer market, and an unfairly beaten-down share price.

The potential of the Indian cellular market is undeniable. With roughly 1.1 billion people younger than 65 and only 240 million cellular subscribers, there's a wide market opportunity here.

But unlike Telkom Indonesia, which is the largest provider in that country, Mahanagar is just a minor player in India. According to India-Cellular.com, Mahanagar's MTNL network makes up just 1.35% of the total Indian cellular market. It has some pretty big competition at the top, as well, including Airtel Telecom, Reliance Telecom, and Vodafone (NYSE: VOD), which together control about 60% of the Indian cellular market.

What Mahanagar does have going for it, though, is its presence in the major cities of Delhi and Mumbai, and the company intends to exploit its advantages there.

Also worth noting is that Mahanagar's controlling shareholder is the Indian government, and there have long been rumors that the government will merge MTNL with its other state-run telecom, Bharat Sanchar Nigam.

Mahanagar shares have been beaten down, though, and sit about 48% off their 52-week highs. CAPS investors think now is the time to give Mahanagar a second look. Of the 220 players who have rated the stock, 217 think it will outperform the S&P 500.

One of those bulls is ReInAd, who argued in March that Mahanagar's valuation was enough to make any value investor salivate:

MTE is trading at a significant discount to book. Trading at a P/E of only 5 in an industry that averages more than 13. Servicing the booming economy of India makes this a no-brainer.

What do you think? To make your voice heard, join the CAPS community. It's 100% free, and we want to hear from everyone.

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Fool contributor Todd Wenning is ranked 341 out of more than 100,000 CAPS players. He does not own shares of any company mentioned in this article. The Fool's disclosure policy is well traveled.