HONG KONG -- How does this sound? The combined price of every listed asset in a growing country of 77 million people costs just half of what it would run you to buy all of



. Better still, while Yahoo! costs 1,585 times earnings, this country sells at about 16 times.

The country is the Philippines, bombed out and abandoned by foreign investors, who have been scared off by a return of the kind of cronyism seen during the bad old days of former President Ferdinand Marcos.

Standards of clean government may be slipping in the Philippines, but amid the gloom, bargains are lurking. Now the smallest market in Asia, the Philippines has a total market cap of just US$44 billion, less than half of Yahoo!. That's smaller even than all of Indonesia, which has a basket-case financial system, not to mention the risk of separatism in its oil-rich province of Aceh. The Philippines has comparatively healthy banks, at least for Asia, and has quelled its guerrilla threats, but not political meddling in business affairs.

It is the slide back into presidential meddling that has pounded stocks so mercilessly. As the rest of Asia has soared, Manila is down 26% since the start of the year, the most dismal performance in Asia.

"Most of the blue-chips are trading at a two-year low, which is what we had in the Russian crisis" of 1998, says Edgardo Del Rosario, head of country research at

Salomon Smith Barney

in Manila. "Others have recovered, but the Philippines hasn't."

It's not hard to see why. As the rest of Asia tried -- or at least said it was trying -- to mend its old ways of connected lending and heavy-handed government interference in the economy (or at the very least paid lip service to reform), the Philippines actually appeared to be moving backward. Economic liberalization was held up.

Gone was the hero of reform, former President Fidel Ramos. In his place is movie star Joseph Estrada, who is not shy about intervening in the affairs of state if he can help out a friend. The low point for Estrada's regime (and Philippine stocks) came this month, when the stock exchange's chief compliance investigator and most of his team quit in disgust after alleged presidential interference in a probe involving one of the president's tycoon buddies.

Then, the head of the securities regulators tried to have the whole market suspended, but was overruled by his colleagues. It was a fiasco, but at least someone tried to do something about suspicious price movements. In Hong Kong and most of the other markets around Asia, stocks routinely move up hundreds of points in a day, while the companies get away with bland, pro forma announcements to the exchanges that they have "no idea" why the stock is moving the way it is. A material transaction often follows.

Its companies severely punished now, there is stock picking to be done in the Philippines, but this market is so depressed and so small that when international investors decide to reweight it just a little bit, most of the companies of any size will rise. American investors should consider a closed-end fund dedicated solely to the Philippines, the

First Philippine Fund

TheStreet Recommends

(FPF) - Get Report

. It's currently trading at about 4.75, about half its 52-week high of 9 and a 21.5% discount to its net asset value.

In its March 1 filing to the

Securities and Exchange Commission

, the fund said that it "potential is high for a significant rally given that the Philippines, in an Asian context, is severely under-owned by foreign investors." Its main reasoning is that although economic reform has slowed, it has not stopped.

After some delay, Estrada has signed into law one key piece of reform legislation, which opens up retailing to foreigners. Next should come deregulation in the power sector, and final passage of a law giving foreigners the right to own entire banks in the Philippines. Then, there is a securities law pending to improve disclosure.

For those keen on picking stocks, Salomon's favorite in the country is

SM Prime Holdings

, a shopping mall developer and consumer goods company listed in Manila and with a private-placement ADR. The stock trades at a 40% discount to net asset value. The other is one of Asia's most interesting success stories,

Jollibee Foods Corp.

, a fast food chain that has done something almost no other fast food chain anywhere has done -- maintain a bigger market share than McDonald's. Jollibee trades at more than a 30% discount to fair value, says Salomon.

Credit Suisse First Boston

media analyst Chris Ng said that his top pick in the Philippines is

Benpres Holdings Corp.

, which already has dominance in free-to-air television as well as cable in the Philippines. It is also preparing to roll out an Internet cable modem service. CSFB forecasts earnings growth of 50% this year, and after heavy capital expenditure, 16% in 2001.