It's time to play China's cyclical rebound, Goldman Sachs (GS) said, suggesting a general tilt toward North Asia and away from South Asia following "unambiguously positive" data from the mainland in August.
"This offers the clearest way to gain exposure to the dominant theme of improving global growth," while limiting exposure to the monetary policy risks that are pressuring markets such as India, Indonesia and Thailand, Goldman said in a report Wednesday.
Goldman's call follows encouraging Chinese economic data which suggests that the world's second-largest economy is on track for a recovery. Industrial production rose 10.4 percent on year in August to reach a 17-month high, while exports rose 7.2 percent on year, beating Reuters' forecast for a 6 percent rise.
A brighter economic outlook has already helped lift Chinese shares, with the benchmark Shanghai Composite stock index hitting a three-month high on Wednesday.
While commodity cyclicals - stocks that tend to move in step with the ups and downs of the economy - have been poor performers over the past couple years, weighed by concerns over China's growth, the segment has picked up recently. The rally could continue, Goldman said, noting the entry point, growth potential and valuation are better than many alternatives.
(Read more: Goldman cuts earnings forecasts for South Asia )
On the whole, China's stock market might not be the best way to play the uplift. Goldman expects the mainland's equity market will likely be stuck in a wide volatile range, supported by inexpensive valuations but capped by structural reforms aimed at shifting growth toward domestic consumption and reducing debt loads.
However, it believes some China stocks offer tactical exposure to the market. These include insurance plays China Taiping Insurance and Ping An Insurance as well as China Construction Bank (Shanghai Stock Exchange: 1939-SZ) and ICBC. It also likes China Resources Power (Hong Kong Stock Exchange: 836-HK), Dongfeng Motor (Hong Kong Stock Exchange: 489-HK) andSinopec .
Among other North Asian markets, export-oriented Korea is geared to the global recovery, and inexpensively valued, while foreign holdings are relatively light, Goldman said, keeping an overweight stance there.
(Read more: Goldman Sachs: Welcome to the age of the dishwasher )
"Korea's valuation and growth parameters remain among the most attractive in the region," it said, noting shares there trade at 8.3 times forward earnings, below the five-year average. It expects earnings per share to grow 15 percent and 18 percent in 2013 and 2014, respectively.
Among Korean stocks, it likes S-Oil, SK Innovation, Posco (Korea Stock Exchange: 549-KR), Kumho Petrochemical andLG Chem (Korea Stock Exchange: 5191-KR).
Goldman also recently upgraded its call on Taiwan for similar reasons. "Taiwan is a global cyclical market, it has a favorable macro profile (low leverage, significant current account surplus, stable currency and high foreign-exchange reserves), and global emerging-market funds are significantly underweight."
(Read more: Emerging market rout fueling riskier Asia bets: Citi )
Among cyclical plays listed in Taiwan, it likes Formosa Plastics and Taiwan Cement.
Although Australia's market is often viewed as a play on China's growth, Goldman maintains an underweight call on the region, as it expects further weakness in theAustralian dollar (Exchange:AUD=) and subdued corporate profit growth. "Valuations are not sufficiently attractive to offset this," it said.
-By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1
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