By Chao Deng 

A consensus is emerging among investors that some Asian markets can do well even with the prospect of higher U.S. interest rates on the horizon.

Fund managers see stepped-up corporate and economic overhauls by leadership in China and India this year, combined with relatively strong growth in Asian economies compared with the rest of the world, as reasons to be bullish. Investors choosing Asia have been rewarded in the past three months. The MSCI Asia ex-Japan index is up 2.4%, topping the 0.4% gain in emerging markets globally and comparable to the 2.6% increase in the S&P 500.

Last week was a bumpy one for some Asian markets, starting out with bad economic news from China early in the week and anxiety over a Federal Reserve meeting and the Scottish independence vote later in the week. At the same time, investors were selling shares of Asian stocks to fund their purchases of Alibaba Group Holding Ltd. shares in its big U.S. initial public offering, traders said. For the week, the MSCI Asia ex-Japan was off by 1.1%, compared with a 0.7% drop for the MSCI Emerging Markets Index and a 1.3% gain in the S&P 500.

The Fed said Wednesday that it remains on track to end its bond-buying stimulus program in October. It is widely expected to raise interest rates next year. Higher interest rates in the U.S. can hurt Asian assets by drawing investment money into U.S. assets and away from Asia's markets.

Despite the concerns over U.S. interest rates, investors say they are selectively investing in Asian markets that they see as cheap and where economic fundamentals have improved or where they believe reforms are on the way.

Investors continued putting money into Asian emerging markets last month, according to the latest data on money flows from the Institute of International Finance. Stocks and bonds in Asian emerging markets received $9.7 billion in August. While that is down from $23.3 billion in July, Charles Collyns, chief economist at the institute, said last month's inflows were comparable to the average $15.3 billion that the region received each month between May and July. In contrast, emerging markets in Europe, the Middle East and Africa saw investors pull out money in August. Data for September are due next week.

"Flows [to Asia] look more robust because these economies are generally doing quite well and [their] exports [are] benefiting from the recovery of countries tightly linked to the global supply chain," said Mr. Collyns. "We expect capital flows to Asia to remain solid," unless the market starts expecting the Fed to raise rates sooner than it does now, he added.

Still, within Asia, investors are getting pickier. As the time for a likely U.S. interest- rate increase approaches, "we are seeing money be more selective," says Petr Kocourek, senior portfolio manager of multi-asset solutions at First State Investments.

Ajay Argal, head of Indian equities at Barings Asset Management, says India is in a better position to withstand higher U.S. interest rates now that it has cut its current-account deficit to less than 2% of gross domestic product.

"India had quite a big scare last year" with its current-account deficit rising to more than 4.5% of GDP as the prospect of the Fed winding down its stimulus program was announced.

"We still believe in the long-term fundamentals in India," and increased investments in its infrastructure should help boost economic growth, says Pruksa Iamthongthong, Asian equities investment manager at Aberdeen Asset Management.

The firm is still overweight Indian stocks even after taking some profits as the market has outperformed its counterparts in the region this year. India's S&P BSE Sensex index is up 28% for the year.

Also looking past the Fed's tighter monetary stance, asset managers such as Edinburgh-based Standard Life Investments and New York-based AllianceBernstein are investing more in China. The country's capital accounts are closed, helping protect the domestic economy from the potential impact of a U.S. rate increase.

AllianceBernstein's director of research for Asia ex-Japan equities, Rajeev Eyunni, says while a U.S. rate rise might weigh on Chinese sectors like property, which are sensitive to borrowing costs, it hasn't stopped the firm from building up its exposure there.

Chinese stocks are cheap and Chinese company profits will benefit from lower commodity prices and increased consumer demand due to higher wages, as well as opportunities for firms to gain market share in still fragmented industries, said Stuart Rae, the firm's chief investment officer.

The MSCI Asia ex-Japan index has gotten cheaper on a price-to-book basis compared with the MSCI World Index, suggesting there is "no argument for overheating" in Asia, Mr. Rae said.

Fund managers in China have also been able to focus on fundamentals in the country, including improvements at its big state-owned enterprises.

"We've generally been underweight SOEs, but now we're adding," says Alistair Way, investment director of emerging markets at Standard Life. He cited China's largest oil refiner, China Petroleum & Chemical Corp., as an example.

Chinese manufacturing data on Tuesday could further darken the outlook for the region's biggest economy. But the country's move last week to loan $81 billion to five major state-owned banks suggested Beijing will add stimulus to the economy to keep growth steady. Also, a program beginning in October that allows overseas money managers to buy Shanghai-listed firms via Hong Kong's stock exchange should mean a new surge of cash to support the market.

In Japan, the prospect of rising U.S. interest rates has weakened the yen, driving the currency down to a six-year low. That has boosted shares of Japanese exporters, helping the Nikkei Stock Average jump 5.8% so far this month.

One factor offsetting the prospect of higher U.S. interest rates for investors across developing markets, not just in Asia, is that central banks elsewhere are becoming more accommodative. The European Central Bank dramatically eased its monetary policy earlier this month, and a struggling economy in Japan is increasingly putting pressure on the Bank of Japan to increase its stimulus program.

Write to Chao Deng at Chao.Deng@wsj.com

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