For now, the US$1.36 trillion U.S. money manager is overweight smaller Asia markets like Thailand, Indonesia, the Philippines and Malaysia, where domestically focused companies make up a large part of the market, said Nick Scott, the firm’s chief investment officer for Asian equities.

“Where we are now in our thinking is we’re going to start taking money out of these markets that have outperformed this year, namely the Malaysias and Indonesias, and rotate back into individual stocks that have oversold; probably India, probably China,” he told Reuters in an interview.

“They’re markets we would instinctively like to be overweight at the moment. It’s just not the right time.”

The China Enterprises Index of Hong Kong-listed mainland companies trades at about 14 times 12-month forward earnings, while India’s 30-share BSE index trades at more than 16 times according to Reuters data.

Scott, who overseas about US$4.5 billion from Hong Kong, warned earnings estimates in general are still too high and will have to be scaled back in many cases. Using the firm’s own calculations, he said he would be keen to buy into Indian stocks at about 14 times 2008 earnings and Chinese shares at 12 times.

The UK-born fund executive spoke a day after BlackRock took top honors at the Lipper Hong Kong Fund Awards in Hong Kong, winning the best overall mutual fund group award for a second consecutive year.

Scott credited the win partly to the firm’s strong culture of risk management, which served it well during the market turmoil that began last year. He thinks Asia markets have farther to fall but can end 2008 at higher levels than they are now.

In addition to his CIO role, Scott is manager of the US$625 million MLIIF Asian Dragon Fund. The fund’s largest holdings at the end of January included China Mobile and property plays Henderson Land Development and New World Development Co.

Other significant holdings include India’s ICICI Bank, South Korea’s Kookmin Bank, Hong Kong’s Hutchison Whampoa Ltd. and Malaysian palm oil producer Sime Darby Bhd.

Scott said the firm is underweight both consumer discretionary and consumer staple companies in its portfolios, as the former is likely to be hurt by slowing growth the later by rising input costs.

The group is also slightly underweight technology stocks, though Samsung Electronics, Hon Hai Precision and Taiwan Semiconductor Manufacturing Co. Ltd. are among the top 10 holdings in the Asian Dragon Fund.

“We still broadly have the view that (technology companies) are cheap, but the earnings are not going to come through like the market expects. There’s been a few earnings downgrades. There’s more to come in IT,” he said.

While BlackRock uses bottom up stock picking rather that top down sector calls to assemble its portfolios, Scott said the firm was overweight Asia telecom firms.

“They’re very cash flow generative businesses. A lot of the capex (capital expenditure spending) has been done ... they really are making good free cash flow yields. Also, they’re very domestic stories so telecom is a fairly stable product,” he said.

The firm’s other significant overweight position in Asia is property stocks, particularly in Hong Kong in China, which Scott thinks will benefit from pent-up demand and loose monetary policy.