Raymond Chan is executive director and chief investment officer (Asia), Dresdner RCM Global Investors Asia The longest-ever period of sustained economic growth in the United States has led to record high stock PE ratios, currently sustained by aspirations of further Internet-driven productivity gains.
But the high level of US consumer debt and a ballooning long-term national deficit overhang both US equities and the US dollar.
That is one reason why global fund flows have been returning to Asian equity markets over the past six to nine months.
But it is by no means the only reason. Asia offers greater investment appeal than any other region at this point, led by a real and sustainable economic recovery in Japan. This is backed by genuine changes in Japan's corporate sector.
A bottom-up restructuring at the corporate level, supported by banking reforms and bank recapitalisations, is beginning to turn the wheels of Japan's economy. We see further upside for the market driven by better earnings and improving ROEs which will attract further international funds inflows.
Elsewhere in Asia, debt is coming down fairly consistently and current accounts are improving. Most Asian countries - India and Australia are exceptions - have surpluses.
