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Playing Asia? Beware of Near-Term Risks: Expert

Investors looking to ride on Asia's recent stock rally face a more dangerous entry point in the near term, said Ajay Kapur, head of equity strategy, Asia at Deutsche Bank on CNBC Friday.

"(The) risk-love (sentiment) towards Asian equities is now pretty high... so it's a more dangerous or more risky entry-point to participate in this bull market," he said.

"What I'm suggesting to clients is to step back a little bit, even though it's a little difficult to do and then time your entry - maybe a few weeks later - (when) sentiment at least calms down a little bit," he advised.

The FTSE CNBC Asia 100 Index has rallied 11 percent in the last 30 days as investors rushed to price in the Federal Reserve's quantitative easing move.

In the longer term however, Kapur remains bullish on Asian equities.

"The overall picture looks pretty good in terms of valuations — the earnings are pretty good, technicals are strong. I think the earnings numbers for next year are way too low for Asia," Kapur said.

"In general, the environment for a cyclical bull market is in place," he said.

Hot Markets in Asia

Deutsche Bank, which recently upgraded its recommendation on South Korea but downgraded Singapore, said in a report that it expects more bottom-up opportunities in South Korea.

Korean stocks are fairly valued and are trading at unjustified discounts compared to the rest of the region, the report said, adding that its 6 percent earnings per share (EPS) forecasts for Korean firms in 2011 are on the low-end.

Apart from Korea, Kapur added that he also likes the Hong Kong, Malaysia and Philippine markets. "They're reasonably valued, they have really good returns on equity and I think the earnings numbers next year are going to be way, way higher than where analysts are projecting right now," he explained.

The report showed Deutsche had upgraded the Hong Kong market due to its real estate sector, on good valuations, strong EPS momentum and reasonable EPS expectations.

While Japan had excellent valuations, stocks there had poor technicals and growth momentum, it added. Japan ranks in the middle of the pack and needs a weaker yen/higher U.S. bond yield and Japanese financials outperformance to come alive, the report said.