Capital inflows into Emerging Asia stock markets were high in October and will probably stay strong in coming months. This huge challenge will continue to be managed through the combination of more currency appreciation and more foreign exchange market intervention. More prudential measures to contain bubbles should also be expected, as well as supervisory changes to limit the damage to banks and the economy when the bubbles burst. Valuations are reasonable for now but bubbles will probably develop over the next 12 months. Equities in Indonesia and India look the most vulnerable.
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