ASIAN markets should continue to outperform during the Year of the Rat, investment experts predict. Japan offers the brightest prospects - and most risks - with Thailand and Indonesia remaining firm favourites. Local investors could be spoilt for choice over the next few months as local fund management companies compete for investors with launches of single country and currency funds. Feng shui specialist Credit Lyonnais Securities is warning that there could be as many spills as thrills for the unwary. But the optimists are in the ascendancy with local and international investors both claiming to be bullish about prospects for local markets. Investors without the time, expertise or wealth to diversify their holdings through individual stock selection should consider one of dozens of funds offering specialist, single country cover or regional funds. Stella Yiu, director and head of Asia-Pacific equities for HSBC Asset Management, said: 'Strong economic fundamentals and significant foreign capital inflows provide an environment conducive to rising equity prices in Asia for the rest of 1996. 'Asia's equity markets have risen strongly in the past on the back of continued economic expansion and significant foreign capital inflows. 'Equity prices in the region are underpinned by strong economic growth and a number of structural and demographic trends that will help fuel Asia's growth into the 21st century.' Key investment themes would be infrastructure, telecommunications, growing domestic consumption and privatisation, she added. 'Against this backdrop of strong economic fundamentals and taking a longer-term view, current Asian stock market valuations are attractive on actual and historical valuations,' she said. For its regional funds, the group is overweight in Thailand and Indonesia; underweight in Hong Kong, Malaysia and Singapore and neutral in the Philippines and Korea. But the group remains cautious about Hong Kong. The reticence is shared by Credit Lyonnais' feng shui specialist who warns investment conditions will be worse than they look. 'Investments will look fine on the surface, but deep inside they will be rotten. 'Institutional investors will control the market and these will be the only people to make money. Retail investors will not understand what is happening and be caught out.' Singapore, one of the top regional performers this year, will be under pressure to maintain growth levels. Rosanna Lam, HSBC's director of Asia-Pacific equities, said: 'The challenge for the future lies in sustaining economic growth at current levels amid generally higher business costs. 'We are cautious on the longer-term prospects of the market as valuations look increasingly stretched.' Mark Richardson, chief investment officer with Chase Asset Management, said the Japanese market 'remains the joker in the pack'. Based on current trends, the Nikkei 225 could reach about 24,000 - a rise of about 3,000 points from present levels. Mr Richardson said: 'We are believers in this market. Our strategy calls for a slight overweight against the benchmarks - a fairly aggressive strategy.'