Investors should buy Asian stocks after valuations dropped and before sentiment strengthens further, Goldman Sachs Group Inc. said.

"By the time all the lights turn green, the race will already be well under way," Goldman Sachs analysts led by Timothy Moe wrote today.

"Sentiment and valuation will improve as the year progresses, and we would prefer to be early."

The MSCI Asia-Pacific excluding Japan Index slipped 0.1 percent to 416.23 as of 8:35 a.m. in Singapore and is little changed for the year. The gauge yesterday erased year-to-date losses of as much as 9.7 percent on Feb. 8 that had been fuelled by concern that China will tighten lending to combat faster inflation and that Greece's debt crisis will spread.

Analysts' earnings growth estimates for this year have climbed to 26 percent on average, near Goldman Sachs's 30 percent forecast, according to the report. The brokerage is predicting a 21 percent increase in profits in 2011.

The MSCI index's valuation has dropped to 14.5 times estimated earnings from as high as 29.3 times in November, after profit estimates were upgraded, according to weekly data compiled by Bloomberg.

"We view the risk/reward balance very positively from a strategic perspective," the Goldman Sachs analysts wrote.

Still, the brokerage trimmed its December 2010 forecast for the MSCI Asia-Pacific excluding Japan Index to 530 from a November forecast of 540, and lowered its estimate for the MSCI Asia excluding Japan Index to 640 from 650.

Goldman Sachs said it remains most optimistic on the outlook for stock markets in China, South Korea and Taiwan. Indexes tracking Chinese shares traded in Shanghai and Hong Kong and Taiwan's Taiex index have retreated at least 4 percent this year, among the 10 worst performers globally. South Korea's Kospi index has fallen 0.8 percent.

Eoin Treacy's view Thanks to the same subscriber for the report mentioned in this article which is well worth a read. Today's higher Chinese inflation and industrial production figures increases the likelihood of a resumption to the appreciation of the Yuan. If the last move is any guide, then further gains in the Yuan's value should be relatively gradual. Such a move should have a net positive impact on the Asian region generally, particularly for neighbouring manufacturing centres which would be under less pressure to hold down the value of their own currencies relative to the Yuan.

The MSCI Asia Ex-Japan Index found support at the 200-day moving average in February and is currently rallying towards the psychological 500 level where it failed in January. A sustained move below the February reaction low near 435 would now be required to question scope for further higher to lateral ranging over the medium term. In the short-term, a downward dynamic would be required for the January high to offer anything other than a temporary area of resistance.

The Shanghai A-Shares continues to trade above the February reaction low and would need to sustain a move below that level to question potential for further firming within the range. The FTSE/Xinhua A600 Banks Index has a relatively similar pattern. The Hong Kong H-Shares Index rallied back above the 200-day moving average last week and would need to sustain a move below 10,950 to question scope for further higher to lateral ranging. Elsewhere in Asia, a number of indices are pressuring their recovery highs and downward dynamics would be required for these levels to offer anything other than token resistance.