Asian equities have made little headway so far in 2012, but Coutts, the wealth arm of Royal Bank of Scotland, believe they can flourish in the second half of the year, as the regional monetary and fiscal policy backdrop turns more supportive.

The UK firm says economic growth in the region has been hampered by restrictive monetary policy, with real interest rates rising. With inflation now falling in most Asian countries, Coutts thinks the case for continued monetary tightness will be weakened.

Asian economies (excluding Japan) are expected to grow their gross domestic product by 7 per cent in 2012, down from 7.5 per cent last year. The slowdown seen in the first half of the year will give way to a modest acceleration in the second half of 2012, Coutts argues.

In a mid-year outlook on the region, Coutts says Asian equities are now trading at a discount to global peers comparable to that seen during and after the global financial crisis in 2008 and 2009.

At the same time, the wealth manager sounds a word of caution, saying that crisis in the eurozone, the upcoming US presidential election and the impending so-called US “fiscal cliff” will keep troubling Asia for the rest of the year.

“Our advice of some six months ago, namely the need for added emphasis on risk management, coupled with a broader, more creative approach to portfolio management, remains as prudent as ever," said Gary Dugan, Coutts’ chief investment officer for Asia and Middle East.

The bank also said its preference for high-quality corporate bonds has helped it in the first half of the year, and should continue to replace government bonds in protecting portfolios against risks in the global economy. As a further hedge, Coutts recommends gold as a long-term store of value against the prospect of depreciating major currencies.