SINGAPORE : Investment house Credit Suisse is projecting an average of 20 per cent upside for Asian markets next year.

It is raising its target for the MSCI Asia ex Japan Index from 500 to 600 points, amid more earnings upgrades expected in 2010.

However, Credit Suisse said that the best part of the rally in some Asian markets may be over for now.

Investors looking for good returns could explore the South Korean and Indonesian markets in 2010.

In its latest report on equities, Credit Suisse said valuations of South Korean markets are currently the most attractive in the region.

And for Indonesia, the bank has forecast an upside of 35 per cent over the next 12 months, boosted by Indonesia's growing political stability and rising profitability of companies there.

Arief Wana, director, Equity Research, Credit Suisse, said: "Over the past 15 years, Indonesian profitability has gone up a lot - more than 40 per cent. And right now, Indonesian return on equity (ROE) is basically the second highest in the region.

"And we think the level of ROE is basically a much better quality. We have seen that the Indonesian business operating environment has improved significantly.

"We have seen a lot of businessmen are in a lot of transparent situation, and more importantly, this level of ROE is at a much lower debt level. And this, I think, is going to make this ROE sustainable in the medium to longer term."

Based on historical trends, Credit Suisse said investors can expect average returns of 20 per cent in the second year of a recovery.

The investment house is also citing other positive factors. These include US unemployment figures, which appear to be on the brink of recovery.

Asian companies may also report more earnings upgrades next year. And investors remain liquid and appear ready to invest.

Sakthi Siva, head, Asia Pacific and Emerging Markets, Equity Strategy, Credit Suisse, said: "We believe that a lot of retail clients are still sitting on a lot of cash. ... something like 55 per cent cash. And... cash earns virtually 0 per cent interest in either Singapore or Hong Kong, so we think some of that cash may come into the markets."

Credit Suisse advises investors to go for cheap cyclical stocks such as those in energy, infrastructure and the financial sector.

It believes the time to go into the market is when central banks start to tighten their monetary policies - which typically leads to 10 per cent corrections. - CNA/ms