Risk appetite may hold out
Despite unresolved issues from the Eurozone, Citi analysts believe that risk appetite towards Asia may hold out based on:
1) Asia's manufacturing cycle, led by tech, could bottom this quarter;
2) Liquidity strains from international banking spillovers remain limited so far; and
3) Sharp food-led disinflation anticipated in the near-term could raise policy easing expectations, notably in China and Korea.

If stable risk sentiment holds with the help of these silver linings, equity-sensitive currencies like the Korean Won (KRW) and Indonesian Rupiah (INR) could benefit more. Lingering China growth worries could cap relative performance of China economy-sensitive currencies like Taiwan Dollar (TWD), Malaysian Ringgit (MYR) and Singapore Dollar (SGD). The latter could also be vulnerable to renewed EUR weakness.

History shows that following Chinese New Year, markets have experienced upside momentum. A combination of cheap markets and prior poor 12-month performance helps. Indeed, equities remain attractively valued with an implied EPS (earnings per share) growth rate of 1.7%. As risk indicators improve, equities as a risk asset get pushed higher. Over the last few weeks, the Citi risk indicator has come off, which has pushed investors back towards risk taking. At the same time, excess liquidity continues to show positive growth momentum and interbank stress is declining.

North Asian markets, which were sold off last year due to growth and financial fears, should be bought back. Asia appears to be back on the easing cycle, which should benefit financials and growth sensitivities. Citi analysts are overweight in Hong Kong, Korea and Taiwan, and neutral in China. Sectors preferred include banks, energy, industrials technology and real estate.