Tokyo paces advance as international funds reallocate assets Stock markets across Asia rose sharply yesterday, as clearer signals on the global economic recovery prompted international investors to reallocate assets, but Hong Kong and New Zealand were left out of the rally. The Japanese and South Korean markets hit 14-month highs as global investors sought out high-yielding assets. The Nikkei-225 Index rallied 3.15 per cent while the Korea Composite Index rose 0.61 per cent. Hong Kong and New Zealand faltered, with the Hang Sang Index slipping 0.05 per cent and the NZSE Capital Index dropping 0.45 per cent. Markets players said the regional rally was prompted by overseas investors positioning themselves for a cyclical upward turn in the global economy, led by the United States. Asia markets were expected to be among the biggest beneficiaries of the pick-up. US consumer spending data showed a rebound of 0.8 per cent in July, led by higher sales of cars and other durable goods. 'International capital continues to flow to Asia,' CSFB chief regional economist Dong Tao said. In recent months, fund managers have been rebalancing their portfolio weightings, shifting more cash into equities in anticipation of a worldwide recovery. Citigroup Smith Barney regional head of strategy research Ajay Kapur said he was overweight on stocks and underweight on bonds. Mr Kapur was particularly bullish on cyclical stocks in the technology, pharmaceutical and basic materials sectors in Korea, Taiwan, Singapore and Hong Kong. 'And we are avoiding the boring low-beta sectors such as utilities and telecommunications,' he said. But not all market players were comfortable with the rally, given its liquidity-driven nature. 'By nature this [hot] money is quick-moving and driven by news flow. It comes fast but goes fast unpredictably. The fund inflows are short term and not concerned with valuations,' China Everbright research director Frederick Tsang said. At the moment, most stocks were overbought, he said. Some blue chips and H shares have surpassed levels reached last year when the Hang Seng Index was at 12,000 points - suggesting their gains may be overdone. BOCI-Prudential Asset Management chief investment officer Lionel Kwok said he was cautiously positive on Hong Kong stocks. He said the rally had been driven by government policy announcements from the central government. Whether and for how long the rally could last depended largely on the announcement of new policies from the mainland authorities, he said. 'Personally, I think the next 'big wave' will be when the central government announces policy details relating to the finance sector, such as the [yuan] offshore business and the [qualified domestic institutional investors scheme].'