Japanese technology stocks may be the best way to play a post-Iraq war rally, according to AMP Henderson Global Investors. For Hong Kong stocks, the fund house only rated them 'neutral', given the view that tax rises announced on Wednesday by Financial Secretary Antony Leung Kam-chung will mute economic growth. Japanese technology plays are ideal for a post-war bounce because of long depressed valuations. The Japanese market had reached its lowest point since 1991 and was more depressed than any other leading market, according to Shane Oliver, Henderson's head of investment strategy and chief economist. A big rally could be expected after the removal of Iraq concerns. Mr Oliver said the depression hanging over investment spending on information-technology in the United States had been clearing since last year. Japanese firms were well-placed to benefit from increasing US demand for personal computers, parts and semiconductors. Although Japanese firms have had their share prices battered in recent months, they do not look like bargains. The Nikkei-225 Index is close to a 19-year low but is still trading at a sky-high price to forward earnings ratio of 48. Matsushita Electric Industrial, which owns brand names such as National and Panasonic, trades at a historic price-earnings ratio of 44 times and 24 times forward earnings. Today's war anxieties rippling through global markets were a rerun of what happened in the 1990-91 Gulf War, Mr Oliver said. And like the last time - providing the war is over quickly - its impact would be far less negative for the global economy than stock markets were now anticipating. The US economy had been purged of some of its imbalances with a recession in 2001, interest rates remained low and present oil prices above US$30 a barrel already fully factored in any supply disruptions from the conflict, he said. The removal of uncertainties stemming from the Iraq crisis and lower post-war oil prices would be positive for confidence and economic growth, allowing the global economy to build on signs of an economic recovery. Mr Oliver said corporate America's profits had been recovering due to better cost controls and revenue growth. There were also signs of economic growth in other Group of Seven countries. Once war broke out, there would be an initial slump in global equity prices, Mr Oliver said. If the conflict was short, equity markets would rally and stocks would outperform bonds. Mr Oliver said Hong Kong stocks were not a preferred choice to play the rally, as higher corporate and personal taxes put in place this week would mute the growth of the economy and corporate profits. US stocks could rise 15 per cent over the next 12 months, he said. But investors were recommended to go underweight on US stocks simply because there would be a stronger rally by Asian-Pacific equities after the war. The US economy should perform reasonably well, with the weakening US dollar helping to boost its exports. Mr Oliver believes the dollar will continue to fall because of the country's massive current account deficit, which stood at US$435.2 billion last year compared with $358.3 billion in 2001. He said the dollar would fall to $1.20 per euro by the end of this year from $1.0956 in New York on Wednesday. The decline of the dollar would not turn into a total rout because either Europe or Japan could afford to have strong currencies inhibiting their export sectors, Mr Oliver said.