Asian stock markets may struggle in 2011 even though economic growth will continue to be better there than in the West, said Hugh Young, managing director of Aberdeen Asset Management's Asian operations.

'I think it is going to be a lot more difficult this year for the Asian stock markets,' said Young, whose Asia Pacific and Asia Pacific & Japan unds are both in Citywire Selection, our top investment picks.

'Our best hope would be that markets don't do much this year and this time next year we'd be here speaking much more confidently about the value on offer in the markets,' Young said.

Interest rates could hit 5%

He said fears interest rates are going to go up may end the rally in Asia.

'All things being equal you should see interest rates of around 5% across the region and you could argue for double digit rates in China,' he said at a breakfast briefing in London.

He said it was difficult to predict exactly how markets in the region would respond but said they could fall 'maybe by 10%'.

While Young believes economic factors rarely determine the long-term direction of any market 'over a period of twelve months they will and I think it's long overdue,' Young said, pointing out there has been a good run in global emerging markets and in a number of Asian markets in particular.

David Fuller's view Veteran subscribers may recall that I have a very high regard for Hugh Young of Aberdeen and I believe all of the group's funds are listed in the Chart Library. He is a 'safe pair of hands' and knows Asia far better than most managers. I agree with his opening comment, although this may understate the risk.

Not to alarm anyone, but I think there will be at least a 10% risk for Asian and most other stock markets in any year. Volatility is often greater with high-beta Asia, especially following two such very good years in which many of us have prospered.

This does not mean that we should sell now, in my view, especially as many Asian markets have already seen 10% corrections or more in a mean reversion process towards their 200-day moving averages. I have sold what I regarded as somewhat more risky assets in my portfolio over the last few months, following excellent gains. These were mainly gold shares and the Aberdeen New Thai IT, as you may recall.

I decided to ride out India's volatility, despite its overextension in 4Q 2010 and relatively high valuations, although I commented on both factors. I do not feel the need to sell everything when markets are somewhat frothy, and I feel that I have often done better by riding out most medium-term corrections.

As a long-term investor in equities, if I fine tune, I would always prefer to buy low and sell high. Applying this to today's market environment, if I experience more profit erosion in India or any other preferred Fullermoney theme, I will be tempted to buy. Conversely, if India rallied back up to or through its recent highs in the next few months, which I do not expect, I might lighten my position.

I think Hugh Young's comments on China are an oversimplification, at least as reported, although they could well apply to companies which are majority owned by government entities. My own views on China are closer to those expressed by John in the comment appearing below the article (use link above).