HONG KONG, Dec 8 (Reuters) - Asia's cyclical recovery has grown more mature and fund managers are now looking for more sustainable growth in 2010, keeping in mind a rebound in Western demand is far from certain.
Upward corporate earnings revisions will likely keep equities rising in Asia ex-Japan, with valuations of markets such as China, Indonesia, South Korea and Thailand trading cheaply compared with the region as a whole.
However, continued heavy flows of capital into Asia will challenge policymakers to fight currency appreciation at a time when exports have not fully recovered.
Following are investment outlooks from foreign fund managers in Asia:
ASSET MANAGER: ROBECO GROUP
INVESTMENT STANCE: BULLISH
VIEW: Find value in stocks where risks have been exaggerated and where low deposit rates will drive domestic investors to higher-yielding equities.
"The Asian recovery is for real, consumers have plenty of money and governments, too," said Arnout van Rijn, chief investment officer and fund manager.
"Equity valuation is very attractive versus alternatives like deposits. In 2010, Asia will trade at a premium: lower macro risk to be rewarded."
AUM: 1.8 billion euros for Asia Pacific, including Japan.
TOP PICKS:
* Bullish on South Korea, Taiwan, Thailand and Indonesia
* Korea gaining market share in Asia; Taiwan technology is a
good buy as domestic investment increases
* Consumer and cement stocks in China are attractive, but
overcapacity may hurt profitability in general and
liquidity will get tighter in 2010
* Japan is a buy for the patient value investor: Telecoms
and some financials have been beaten up too much.
ASSET MANAGER: BARING ASSET MANAGEMENT
INVESTMENT STANCE: MODERATELY BULLISH
VIEW: China and Asia should see earnings grow sustainably now the cyclical recovery has been priced in, but India earnings appear fully priced.
"We remain bullish on Emerging/Asian economies' and equity markets' long-term prospects," said Khiem Do, head of Asian Multi-Asset.
Global search for sustainable growth and low rates may keep pushing up Asian valuations to expensive levels.
"After 2008 setback, Asia's out-performance is expected to continue," said Henry Chan, head of Asian equities.
AUM: $4.15 billion in Asia ex-Japan as of Sept. 30
TOP PICKS (multi-asset portfolio):
* Overweight Singapore equities and currency
* Overweight emerging Asia stocks and currencies
* Overweight energy, techonology, materials and telecoms
* Underweight consumer discretionary, financials, healthcare
and utilities
* Underweight Japanese government bonds and equities
ASSET MANAGER: FORTIS INVESTMENTS
INVESTMENT STANCE: MODERATELY BULLISH
VIEW: Corporate earnings could continue to be revised higher for another 5-11 more months, though risks of a policy misstep, inflation and a double dip in the global economy remain.
"Enjoy asset price rally and inflation before it hits us ... Stay invested to benefit from emerging Asian growth," said Desmond Tijiang, Asia ex-Japan chief investment officer.
AUM: 14.3 billion euros in Asia ex-Japan as of Sept. 30.
TOP PICKS:
* Overweight China, Indonesia equities
* Neutral on South Korea, India stocks
* Underweight Malaysia, Taiwan and Thailand
* Overweight consumer discretionary, real estate, tech
* Underweight industrials, consumer staples, telecom and
utilities
ASSET MANAGER: WESTERN ASSET MANAGEMENT
INVESTMENT STANCE: MODERATELY BULLISH
VIEW: Asian central banks will not likely raise interest rates quickly as long as their counterparts in developed economies maintain accommodative policies.
To deal with heavy inflows of capital into Asia, officials may take other action, such as tightening bank reserve requirements.
"Central banks are also worried that higher interest rates might slow domestic growth, which is precisely the part of the economy that needs to grow in order to compensate for weaker export markets," said Rajeev De Mello, head of Asian investment.
AUM: $2 billion in Asia ex-Japan as of Sept. 30.
TOP PICKS:
* Overweight currencies of Indonesia, Malaysia, India and
South Korea
* Overweight Indonesian, Thai bonds
* Overweight long-term Chinese yuan forwards
ASSET MANAGER: INVESCO
INVESTMENT STANCE: CAUTIOUS
VIEW: Large inflows of speculative capital is the main problem that Asia faces, potentially accelerating currency appreciation.
"Asian policymakers, therefore, face a major challenge in managing the consequences of these massive inflows while maintaining healthy growth rates and low inflation in the year or two ahead," said Paul Chan, chief investment officer, Asia ex-Japan.
AUM: $19.2 billion in Asia Pacific as of Sept. 30.
TOP PICKS (for Q4):
* Overweight China, Hong Kong, South Korea, Indonesia and
Thailand
* Underweight Taiwan, Singapore, Philippines, Malaysia
* Hong Kong should continue to benefit from hot money flow
into equity and property markets.
* However, hot money threatens to push up the Singapore
dollar further and hurt exports.
ASSET MANAGER: SCHRODERS
INVESTMENT STANCE: CAUTIOUS
VIEW: Final demand in developed economies will not be strong enough to support growth, and the global economy could falter again.
"After the extraordinary performance of Asian equities in 2009, it would now appear the easy money has been made ... The key question is whether the rebound will be self-sustaining or whether it will stall as government stimulus measures are withdrawn. Either way, the recovery path is unlikely to be smooth, and Asian equities will likely face increased volatility as a result in 2010, keeping us cautious," said Louisa Lo, head of Asia ex-Japan equities.
AUM: Globally 138.9 billion pounds as of Sept. 30.
TOP PICKS:
* Asian consumer-oriented
* Insurance, property, infrastructure
* Wary of companies sensitive to global demand (Reporting by Kevin Plumberg, Editing by Ian Geoghegan)