This would be a negative for the yen, and may mean funds begin to start borrowing from the Bank of Japan again by the end of the year. That would also be a plus for Chinese shares, which have traditionally benefited from speculators using cheap Japanese debt to buy in Hong Kong. Lending in Japan rose 1.4% on the year last month, its highest rise in four months.

Still, ABN Amro's Knol says that valuations, particularly in Chinese financials, have risen to a level where he is uncomfortable buying, and that unlike many Hong Kong money managers, he is not looking for a fall in the indices to prompt a buying opportunity.

"There is so much interest in investing in these stocks domestically, so your multiples have gone through the roof -- it scares me a bit," he says.

"You know banks in China have never been through a credit cycle so you don't know how disciplined they have been with underwriting risk. I'm not looking for near-term downswing so I'm just trimming a little here and there," he adds.
Daniel M. Harrison is a business journalist specialising in European and emerging markets, in particular Asia. He has an MBA from BI, Norway and a blog at www.theglobalperspective.biz. He lives in New York.

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