Investors are best advised to take a summer holiday from Asian stocks and come back in about six months when the weather cools and prices are lower, according to fund house Pioneer Investments. Head of portfolio management for Far East equities Angelo Corbetta predicts Asian markets will repeat the mini-crash that started in April, with most markets facing about 15 to 20 per cent of downside ahead. The reason for the gloomy outlook, he says, is the investment cycle in the region has just about peaked out - as key measures of capital expenditure are hitting a threshold that has historically signalled reversals. 'The ratio of capital expenditure to GDP is way too high for China and has to come down,' he says. 'Every time that ratio has moved above a certain level, in every market, it has been bad for equities.' A decline in the mainland's break-neck pace of industrialisation will cull orders for factory equipment, steel and other products, creating a domino economic cooling effect across the region. '2004 will be the year when earnings peak for Asia,' he says. 'Real bond yields are too low in an environment where inflation is going up.' He says the gap between bond yields and GDP growth is likely to be closed by a sharp increase in interest rates. The emerging picture leaves him negative on the outlook for equities in most markets, particularly Hong Kong and China, which have been ground zero in the reflation story. 'Earnings and long-term bond rates will go in different directions,' he says, adding bond yields are currently around 3 per cent, far too low on a historical basis for high-risk Asia. Last year inflation was seen primarily in commodities such as iron ore and copper prices, but this year he expects to see the pressure build in 'soft' agriculture commodities, resulting in higher food prices. Another negative is imbalance in supply and demand for shares of publicly traded companies, with too many new equity issues in the pipeline. Mr Corbetta believes the recovery in regional markets during the past month is a technical bounce, and share prices will soon resume their downward trajectory. 'Markets don't like new issuance, especially when they represent more than 2 per cent of the market,' he says. Applying a worst-case scenario analysis to the region, he says the only countries that look appealing are India, Korea and Japan.