Standard Life Investments believes that on a global perspective, Asia looks very attractive, both for cyclical and structural reasons. Andrew Milligan, its Edinburgh-based investment director and head of global strategy, was recently in Hong Kong to talk to clients and prospects about why.

"Latin America is classic 'emerging markets' but aside from Mexico all the countries have problems," he says. "Japan is in the 'are you serious?' category. Eastern Europe is too small, although American investors are now keen on Russia. Western Europe may be interesting, but elections are causing global investors to think, and we'll have to wait until the fourth quarter, after the German elections, to sense whether real restructuring will go ahead. North America is range trading, it's not a bear market but we can get better returns elsewhere.

"Asia is seen as an export cyclical play, and last year we went overweight on exporters. But we have also been impressed by post-financial crisis restructuring efforts to allow global investors to buy into assets. This has been a very big change. There is also the demographics: countries like Korea, Taiwan and Australia have fast-growing population growth in people aged in their 20s to 40s, and they are big consumers. So whereas a few years ago Asia carried a big equities risk premium, that has now fallen, while it has risen in Latin America."

So what are the risks, the factors that fund managers are watching to see whether Asia's promise is fulfilled?

Milligan outlines three basic factors, all overlaid by the wildcard of China.

The first is the price of oil. For now OPEC has enough supply and willingness to keep prices capped, but Milligan worries that a $5 risk premium has already become embedded in sales. Asia would not cope well with sustained price rises, although it is less vulnerable than Latin America or Eastern Europe, he says. The bigger problem is that during an oil crisis, international investors will shift assets to home-market safe havens, so Asian stock markets would suffer even if their economies chugged on.

The second risk is that the US recovery fizzles and dampens Asian exports. The massive liquidity now sloshing around the banking system means a 'double dip' recession is unlikely, in Milligan's view, but a drop in consumer spending could still hurt Asian exporters.

The third risk is a sustained depreciation of the greenback, which would impact markets here differently. Milligan says this is a real possibility now that US investors are for the first time since the tech boom thinking about shifting investments abroad, which would naturally cause the dollar to lose value. "The US would be exporting its problem of insufficient growth," he notes.

This is mixed news for Hong Kong. On the one hand, it means a more competitive export sector. But it also means investments will switch to younger markets with more consumers, such as Australia.

Milligan confesses that he has "no idea" what this would mean for markets such as Taiwan and Korea. He says this heralds the return of the country analyst.

Now, across all of these scenarios - oil price high/low, US economy up/down, US dollar strong/weak - is the China question. On the plus side, he foresees roughly 7% GDP growth per annum for years. China is an export machine. But there are worries over over-investment and over-production. "The words 'return on capital' are words that not many Chinese understand or agree with," he says.

In his mind, the question on China is: which is more important, internal inflation with low unemployment and a strengthening infrastructure for services; or lower prices for investment goods like consumer electronics?

Milligan himself does not profess to have a crystal ball that can answer any of these questions. Rather, he feels fund managers have to ask themselves 'what if' and plan contingencies for any combination of results. But whatever the outcome, Standard Life, which has $2.5 billion invested in various Asian ex-Japan markets intends to maintain its overweight position. Thanks to restructuring as well as exporting prowess, Asia is the stable component in the firm's global allocation strategy. "We may add or reduce risk elsewhere but in any scenario Asia remains attractive," he says.