Conditioned by a decade of strong U.S. growth, most investors believe they don't need foreign stocks to prosper. They're wrong.

During the 1990s, the U.S. stock market outperformed the rest of the world by a wide margin and crises in Asia and Latin America made investors wary of casting a wide net. But analysts say that wasn't normal. Indeed, for most of the 1970s and 1980s, international markets outperformed the U.S., according to Smith Barney global equity strategist Matthew Merritt.

"We would caution against viewing the 1990s as typical investment conditions," he said. "The case for broadening investment horizons across international borders is strong."

While it's possible that the U.S. will continue to beat foreign markets indefinitely, higher valuations here and an expected drop in the dollar suggest that's unlikely. Historically, the U.S. market has outperformed when the dollar has been strong, Merritt noted. So where do the best opportunities lie?

One of the most exciting places to invest right now is in Asia, according to portfolio specialist Kurt Umbarger of T. Rowe Price.

"These markets (excluding Japan) have gone through some pretty significant restructuring both at the government level but most importantly at the corporate level as a result of the very difficult economic crisis that these markets experienced back in 1997 and 1998," he said.

The initiative to clean up balance sheets and to try to reduce excess capacity coupled with a healthy rise in commodity prices, which make up a significant portion of Asian countries' GDP, paints a healthy backdrop, he noted.

Umbarger particularly likes Samsung in Korea and he's recently been buying into the Indian housing sector, citing deregulation in that area. "India is on a better economic footing with gross domestic product coming in at 8% for 2003, and we're optimistic for 2004," he said.

One of the most prominent technology companies in India, Infosys ( INFY), recently posted a 33% quarterly jump in earnings.

Frank Holmes, chief investment officer of U.S. Global Investors, thinks investors should have some exposure to China. In the third quarter, China reported gross domestic product growth of 9.1%, well above the second-quarter pace of 6.7%.

Holmes specifically likes PetroChina ( PTR) and CNOOC ( CEO). In April, billionaire investor Warren Buffett started buying up shares of PetroChina, and the ADR is up 89% so far this year. A big rise in factory output has increased the demand for oil and other commodities within China, sending prices higher.

Investing in China isn't easy for retail investors. Although ADRs are available, they aren't always liquid. Umbarger said valuations on Chinese stocks are too rich for him right now. But Holmes' China fund is up 8% on a five-year annualized basis compared with a 1% gain for the S&P 500.

Many portfolio managers say they prefer to look for companies outside of China that are likely to benefit from the country's voracious appetite for raw materials such as oil, copper and zinc. Holmes thinks Australian-based WMC Resources ( WMC) and Russia's Lukoil ( LUKOY.PK) could benefit.

Although a 5% drop in the Nikkei Stock Index Thursday caused some consternation, several analysts believe Japan is poised to do well over the next few years. They note that the political commitment to reform is strong and say there is increasing evidence that deflation is subsiding.

Smith Barney analysts recommend Toyota ( TM) and Nippon Telegraph ( NTT).

T. Rowe Price recently added to positions in Japan Telecom ( JPNTY.PK) and increased its exposure to Japanese banks, buying Mitsui Trust Holdings ( MUITF.PK), Sumitomo Mitsui Financial Group ( SMFJY.PK) and UFJ Holdings ( UFJHF.PK), among others.

It's not just Asia that holds promise. The European Union put out a draft statement last week saying that the recovery "should gain momentum in the course of 2004." In France, consumer spending is coming off a seven-year low so analysts believe there's plenty of pent-up demand. Smith Barney recommends Royal Dutch ( RD) and Vodafone ( VOD), among others.

Then there's Eastern Europe. Holmes' Eastern European fund is up 21% on a five-year annualized basis, and he believes these stocks are likely to continue this performance, citing strong economic growth and low valuations in the region. Cheap labor markets are becoming the backbone of the European industry and Holmes believes Russia will be a major provider to Europe and Asia going forward.

Limiting your investments to the U.S. market alone means shutting out a lot of great opportunities abroad. By widening the pool of securities from which to choose, you're more likely to increase your returns and reduce your risk.

"For U.S. investors in particular, the 1990s was an era when there seemed to be little benefit to looking overseas," Merritt said. "The time may be right, in our opinion, to challenge that perception."