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nvestors should be overweight on Asian equities and shy away from bonds as inflation is set to rise over the next two years, says Aberdeen Asset Management.

Michael Turner, head of global strategy and asset allocation for Aberdeen Asset Management, said Asia would lead the global economy in terms of growth.

Asian ex-Japan and other emerging markets are favoured investment options for the next year, even as governments begin to cut back stimulus measures taken during recession.

Monetary policy, meanwhile, is likely to remain supportive, as inflation in developed economies will likely remain subdued.

But inflation trends in Asia represent a higher risk, driven by rising commodity prices and plentiful market liquidity.

"Aberdeen sees Asian equities ex-Japan and other emerging markets as generating acceptable returns this year. Equity valuations are neither cheap nor expensive, and target returns are set at 10% to 11%," Mr Turner said yesterday.

Aberdeen projects global equities will deliver returns of 7% to 8% this year, on par with real estate, which has lagged as an asset class but now is seeing increasingly attractive yields.

Investors should avoid bonds, the firm believes, as excess liquidity will lead to growing pressure on inflation over the next several years while supply builds due to rising government debt.

"Dividend stocks will perform higher than bond yields, so we recommend to underweight bonds due to interest and inflation risks. Returns will also be low, and Asian government bond yields will face upward pressure from supply," Mr Turner said.

Aberdeen Asset Management's Asia Equity Fund as of Jan 29 had a one-year return of 58.26%. The fund has a 21.7% weighting in China and Hong Kong, 17.1% in India, 16.2% in Singapore and 5.9% in Thailand.

Aberdeen's Global Emerging Growth Fund, meanwhile, offered a 62.47% one-year return as of Jan 29. The fund has investments in Brazil, China, Hong Kong and India, as well as a 4.4% weighting in Thai stocks.