Regional markets are expected to continue performing well this year, driven by the same two forces - China and the US Most Asian markets recouped their 2002 losses last year as global money poured into the region, including Japan, on a theme of asset reflation resulting from rapid demand growth in China and Americans' desire for manufactured goods. The consensus for this year is that Asia will continue to fare well, driven by the same two forces of China and the United States. 'For 2004, we are still bullish on economic growth - the world's current account imbalances should be corrected not by a bust in the US but by a boom in Asian growth,' Deutsche Bank chief regional strategist David Scott said. 'But, with a whiff of euphoria in the air, we are facing a great money-losing opportunity in the next two quarters,' added Mr Scott, who expected markets would rally in the second half after a first-half sell-off and consolidation. 'There's still too much value around for this to be a long-term top,' he said. JP Morgan regional equity strategist Adrian Mowat agreed that Asia would retain the global spotlight but said investment themes would be very different. Last year's 'strong rally in markets was due to a sharp increase in economic confidence and risk appetite', Mr Mowat said. 'We believe that this cyclical beta phase is now complete. [This year] will be about buying sustainable growth at the right price and we will be targeting alpha not beta,' he said. Cyclical stocks would face the headwinds of slowing economic momentum, as well as the prospect of rising interest rates and stronger Asian currencies. Alpha measures returns on an investment based on its inherent value, beta gives the returns brought by relative volatility. Many Asian countries will also hold elections this year and Mr Mowat believed fiscal stimulus before these would reinforce the already accelerating domestic growth. Thailand was the best performing market in the region last year and was widely expected to be the winner this year as well. The head of research at CLSA in Thailand Nick Cashmore said: 'In 2004, Thailand could still be Asia's best performing market.' He expected the Thai economy would grow more than 8 per cent this year, powered by capital expenditure and domestic consumption. He has an SET Index target of 900 points, with PTT, Siam Cement, Thai Olefins, Land & Houses and Kasikornbank as top picks. The next-best performer last year was India, and some expect the strong momentum will continue this year, with robust earnings growth this year and next year. After last year's rally, Mr Mowat said: 'Indian stocks are no longer cheap relative to historical levels. 'But stronger earnings growth [this] year and low interest rates would justify a re-rating of Indian shares.' Mr Mowat has an 'overweight' rating on India and favours autos, cement, banking and materials. Indonesia also performed well last year, gaining 62.82 per cent as investors were steering more towards the high-yield and high-risk markets. Mr Cashmore expects significant upgrades of company earnings because of strong domestic demand growth fuelled by election spending. For South Korea, last year was volatile. The country did benefit from the global 'buy Asia' fever but a consumer debt bubble and nuclear threats from North Korea made the market one of the worst performers in the region. Some analysts believe last year's weak domestic consumption will continue to drag down Korean shares early this year but others argue that the Korean markets will be a good buy. A Merrill Lynch survey found Korea was fund managers' most favoured country on hopes the market was poised for change brought by domestic recovery. This year is also expected to be the year of Asian currency appreciation. James Malcolm, regional currency strategist at JP Morgan in Singapore, said key reasons to expect a strengthening of regional units were swelling trade surpluses, US dollar revenue for exporters and portfolio equity inflows. 'Such pressure has been much in evidence in 2003, though for the most part it was offset by aggressive US dollar buying by local central banks wary about the sustainability of the global recovery and the re-emergence of local event risks such as Sars,' Mr Malcolm said. 'As domestic growth gathers momentum, local central banks should become more comfortable allowing their currencies to appreciate,' he added.