By Vasu Menon

The Year of the Ox has just passed and we're into the second week of the Tiger year according to the Chinese zodiac calendar.

After a spectacular performance from stock markets in the past year, many are hopeful that the new year will bring good tidings and offer more opportunities for investors.

The Ox year was a memorable one as the world teetered on the brink of financial meltdown. However, aggressive and concerted action from policymakers and a slew of unconventional measures by central banks prevented the world from slipping into a depression.

While the global economy seems to be recovering gradually, stock markets roared ahead last year, boosted by high liquidity and low interest rates.

So what's in store for investors in the Year of the Tiger?

History, unfortunately, provides little comfort. Previous Tiger years have often marked the beginning of more turmoil or financial disasters.

Also, the turn of a decade in the past 20 years had been followed by a sharp sell-off in markets. In 2000, the dot.com bubble collapsed, sending stock markets sharply lower, and it was not until 2003 that markets turned the corner and started a multi-year bull run.

Looking further back into 1990, the Nikkei stock index, which peaked at 38,915 at the end of 1989, embarked on a long downtrend starting from the new year.

So will 2010 mark the beginning of another downturn for stock markets after a stellar performance in 2009? Or will this year prove rewarding for those who are prepared to take risks?

The physically powerful and fiery tiger is admired by the ancient Chinese and seen as a symbol of bravery and courage. So will the Tiger year embolden investors and send stock markets higher?

The tiger is also lauded for its agility and ability to take advantage of tough situations. Does this mean that fortune will smile on investors who find ways to turn challenges into opportunities?

Our take is that for those with the risk appetite, equity markets in Asia - excluding Japan, which continues to be mired in deflation - will prove to be an attractive proposition.

There are good reasons for investors to ride the Asian Tiger in the new year despite the recent turbulence.

The fundamentals in Asia are clearly superior compared to the West's and the global financial crisis over the past two years has benefited Asia by raising the region's global profile.

Consequently, Asian bourses saw a significant inflow of funds last year. While the flows have slowed down significantly this year due to several headwinds, this may be temporary and things could pick up once again in the coming months.

In fact, Asia ex-Japan equities were favoured by 16 fund managers polled recently by OCBC Bank's Wealth Management unit.

While bourses in the region have run up significantly in the past year, they are still attractively valued if investors are prepared to look out over the next two to three years.

Going forward, earnings estimates may be revised upwards if the economic recovery gains momentum, which should help to boost Asian bourses even further.

Still, brave-hearted investors who want to ride the Asian Tiger must be aware of the downside risks. No doubt, the tiger is courageous, prepared to take risks and always searching for excitement. But it also lives dangerously, which can lead to trouble.

Asian markets saw a sell-off last month after concerns surfaced that China, which was a key driver of growth in Asia last year, could begin tighten monetary policy. This came after a surge in bank lending in China in the first two weeks of last month, which led its central bank to raise the reserve requirement for banks in the country.

No doubt, China is taking pre-emptive measures to prevent an asset bubble from brewing in the country. However, we do not think that it will do anything drastic to derail its strong economy. The measures taken by China are responsible and pre-emptive and positive for its economy and asset markets in the longer term as they will prevent overheating.

Nevertheless, fears about the Chinese authorities stepping too hard on the brakes to cool the economy will continue to spook investors intermittently and cause Asian bourses to be volatile.

Sentiment on global markets also soured after United States President Barack Obama unveiled plans recently for tough banking reforms that would limit excessive risk-taking, which has been blamed for the financial crisis.

Mr Obama's reforms include capping banks' non-deposit funding sources, disallowing banks from owning, investing in or sponsoring hedge funds or private equity funds, and disallowing banks from engaging in proprietary trading.

The proposals, if accepted by lawmakers, will bring about significant fundamental changes to the US banking industry which is the heart of the US economy. While they may be positive for the US financial industry in the long term, the measures could have a negative short-term impact as they will curb liquidity, which has been a key driver of markets in the past year.

Aside from developments in China and the US, there are also concerns about sovereign credit downgrades and defaults in Europe, where Greece and Spain have recently faced credit rating pressures.

The risk of more credit downgrades in other European countries and even in Britain and the US cannot be discounted. This can be a significant headwind as sovereign credit downgrades could curtail the ability of governments in developed economies to borrow and spend to aid economic recovery.

Asia, on the other hand, is in a much better shape than the West. The region's banking sector is sound, its consumers are under-leveraged and have excessive savings, companies are low geared and resilient to a downturn, and governments in the region have the means to launch further stimulus packages if need be.

All this means that investors with a strong risk appetite and a medium-term horizon should consider investing in Asia ex- Japan equities in the Year of the Tiger, which could herald a new decade of prosperity for economies and stock markets in the region.

Asian equities currently comprise only a small portion of global fund managers' portfolios compared to the region's share in the global economy. As fund managers increase their weightings in Asia, markets in the region stand to enjoy more upside in the coming years.

Like the courageous but unpredictable tiger, the coming year may prove fortuitous to those brave enough to seize opportunities thrown up by the turbulence on the international financial markets.

The writer is OCBC Bank's vice-president of wealth management Singapore

This article was first published in The Straits Times.