Next week Morgan Stanley will host its inaugural Asian investor conference in Singapore. The Asia Pacific Summit - as it is called - will be opened by DPM Lee Hsien Loong and CSRC chairman, Dr Zhou Xiaochuan. As a taster to the conference, Morgan Stanley's Asian equity strategist, Norman Villamin shared some of his views on where the markets are going:

Simple question: where do you see things going?

Villamin: The way we approach the markets is on a strategic basis - looking out a year - and on a tactical basis - ie what one does on a three to six month view.

On a strategic basis, the theme we've been highlighting all year long has been one of deflation. If that remains a credible threat, it's an issue for Asia and the world.

On a tactical basis, a lot of the concerns we had have been addressed by the 20% fall we?ve seen in Asian equities in the third quarter - in terms of global growth expectations and earnings expectations next year. Overlay that with our view that in the fourth quarter we?ll get some policy response in the US; then I wouldn?t be surprised to see a rally in Asian equities on the back of that.

So in the near term, we are more constructive on Asian equities. But it is not like 1998 where you go and buy companies with bombed out balance sheets. This time you are focusing on the companies that have restructured their balance sheets since the Asian crisis and really solidified their positions in their respective markets and industries.

Do you agree there are a lot of Asian companies now paying such healthy dividend yields, that you are effectively getting a free option on the equity because the yield alone is better than a bond?

A dividend strategy has worked very well all year and particularly in the last three months.

One of the concerns we had earlier in the year was the extent of the global growth environment being priced into the market. In May or June, Asian equity markets were pricing in about 5% growth in the OECD. In July that was about 2%.

Now markets are pricing minus 1.5% growth. So from plus 5% to minus 1.5% your risk in terms of growth have disappeared.

And I agree you can find companies paying good dividend yields in Asia that are also growth companies. So I would want to own companies paying dividends and strong free cashflow. You are getting paid to wait at the moment with such stocks for upside growth.

Do you see Asia decoupling from the rest of the world in terms of equity performance over the next three or four years?

Over the next three or four years, I would say the probability is pretty good. Over the next six to nine months I would say it is pretty poor.

The reason I say that is this. During the first part of the year when Asia was outperforming global markets, it was because a lot of the economies were able to run independent policies vis-a-vis the US, such as Korea, Malaysia and Thailand. That created the domestic demand story. The sustainability of that was limited because of reliance on the export environment.

Looking out three or four years the decoupling is possible if they are able to shrink the export base relative to the domestic economy. Over the cycle that prospect is there.

A lot of people are now debating whether China is going to be positive for the rest of Asia or negative for it. Do you have a view?

Overall, China is good for Asia from the standpoint that since 1998 China has put pressures on corporate Asia to ?mature?. China is an important competitive force, and what it has forced Asian corporates to do, is to become cost-competitive outside of their currency.

At some point China will become as important a demand source for these economies as the US, and on an incremental basis intra-regional trade is becoming very important.

This links with your question about decoupling, since it will not be just about the reduction of domestic demand versus export demand, but also about the export demand being more focused in Asia itself.

We?ve talked about the long and medium term. Talking about the very very short term, how big an impact will the bombing in Bali prove to be for Asian markets? Is it going to cause a general exodus of US money?

The third quarter performances already demonstrate money has been withdrawn from the region. The risk we might see with the bomb in Bali is that risk premiums may rise in ASEAN.

It?s an important event, but I feel the overriding issue for Asia right now is the direction of the global economy. If we get more constructive policy responses, Asian equities can do well and probably will do well.

The risk the explosion in Bali brings to the picture is that it could be the beginning of something broader - ie a new wave of terrorist activity that hits equity premiums around the world.