Risk appears firmly back on in Asia, as the Fed's decision to embark on a third round of asset purchases spurred strong gains across stock markets on Friday.
And the rally could have some ways to go, analysts say, with the region's cheap, cyclical stocks among the biggest beneficiaries.
On Thursday, the Fed surprised markets by pledging to buy $40 billion worth of agency-backed mortgage debt every month, until the unemployment rate, currently at 8.1 percent, significantly improves. The move will likely cause an influx of liquidity into Asia, according to Vasu Menon, Vice President of Wealth Management at OCBC Bank, who sees funds moving from yield stocks, which have done well so far this year, to cyclical stocks.
"Some of this money is going to spill over to Asia," Menon told CNBC Asia's "Squawk Box" on Friday. "I think if the Fed measures work in terms of helping to boost the U.S. economy, it will help Asia in terms of growth to some extent and we could see the play move from yield towards cyclicals."
Examples would be sectors like commodities, banking, marine, residential properties, Menon said.
Nicholas Ferres, Investment Director of Global Asset Allocation at Eastspring Investments, told CNBC he recently bought global mining shares via an exchange-traded fund on August 31 because these were looking very cheap.
"That ETF has done very well since 31 August and essentially, that was on the basis that the valuation of those cyclical stocks was extremely cheap," Ferres said.
"I think the most important that investors should do is to look for assets that are relatively cheap. Assets that we feel are cheap are some of the global cyclicals in particular the metals and mining sector, which we recently went overweight on."
Over the past two years, cyclicals such as financial stocks and commodities have been beaten down as investors shunned industries that they consider volatile amid weak global growth and sought safety in bonds and high-dividend stocks. The region's biggest financial firms such as Agriculture Bank of China, Bank of China, ICBC and mining firms like Rio Tinto and BHP Billiton have all fallen, some more than 20 percent. In contrast, S&P 500 has climbed about 30 percent and other Asian indices made gains as well.
North Asia Attractive
He said what's looking attractive right now in Asia are North Asian markets, particularly China, which he is considering investing because valuations are low.
Like Ferres, OCBC's Menon also favours China and Hong Kong because of their cheap valuations, but cautions that investors should dip their toes in gradually. The Shanghai Composite index (Shanghai Stock Exchange: .SSEC) is valued at 9.7 times estimated earnings, compared with the 17.4 average since 2006. Hong Kong's Hang Seng (Hong Kong Stock Exchange: .HSI) is trading at 9.06 times compared with an average of 19 times.
"I know China is off the radar screen but Chinese equities have done so poorly in the past 3 and a half years, valuations are cheap at this juncture, expectations are almost zero," Menon said. "I think you would to start buying gradually, not throw all your money in at one go...Hong Kong as well, that's another cyclical market, that could do well."
More conservative investors can consider buying bonds, Menon added.
"In Asia, you see a lot of money going into bond markets," he said. "But you don't want to be too careful at this juncture of the market. What we have seen in the past two years is after a 10-15 percent correction, the money starts getting put back into the market and we see a rebound. It's not a good idea to be too fearful at this juncture and to be too risk averse."
-By CNBC's Jean Chua.
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