* Asian emerging market stocks up over 11 pct from Dec. 23
* Cyclical stocks boosted by inflation expectations, global
* Taiwan, S.Korea which have led equity flows in emerging
* Indonesia, Philippines hurt most by investment outflows
SINGAPORE, March 7 (Reuters) - The initial reaction of Asian
stock investors to Donald Trump's election victory was clear:
sell, on worries his protectionist trade rhetoric could hurt the
region's export economies.
Long-term investors have since started to trade on Trump's
promises of tax cuts and higher infrastructure spending that
will stimulate U.S. growth and pull the world economy along, or
the reflation play.
Asian emerging stocks have risen more than
11 percent from a Dec. 23 low, above November's pre-Nov. 8
election levels though they have come off their highs on
prospects of an imminent U.S. interest rate hike.
"You can buy cyclical stocks in Asia and benefit from the
reflation trade," said Sat Duhra, an Asia fund manager at
Henderson Global Investors. "You don't have to buy exporters and
be exposed to the vagaries of U.S. policy."
The rally in Asian shares has been led by cyclical sectors,
such as consumer-related companies, which typically thrive in
times of economic strength.
Materials stocks, for example, are up 15
percent from post-election lows, while utilities
have risen less than 9 percent.
DEFLATION TO INFLATION
Investors are more confident governments can boost growth
via fiscal policies and that inflation is picking up after a
long period of highly stimulative global monetary policies.
"What has started to change, which is giving people faith,
is that global growth is starting to spread," said Josh Crabb,
head of Asian equities at Old Mutual Global Investors.
"Asia is still very cheap, and people are buying into
markets like Taiwan and South Korea because they see them as
global growth trades."
Old Mutual's sterling-denominated Asia-Pacific fund, whose
biggest holdings include South Korea's Samsung Electronics
, Hong Kong-based Tencent Holdings and
Taiwan Semiconductor Manufacturing Co, returned 6.2
percent in January, compared with the benchmark's 3.9 percent.
Signs are that manufacturing, consumer demand and inflation
are picking up across Asia. The World Bank has also forecast 2.7
percent global growth this year, from 2.3 percent in 2016.
Taiwan and South Korea - which have led equity flows into
Asian emerging markets this year - could be vulnerable to U.S.
trade protectionism, but Henderson's Duhra said larger firms
such as Samsung and TSMC are "so far up the value chain that
they're not just commoditised tech companies."
With more of such companies and stronger current account
positions, North Asian markets are a better bet than Southeast
Asia, he said.
A more stable Chinese economy has also helped emerging Asia.
"The interaction of the Chinese economy with the rest of the
Asian economies is now extremely close," said Mark Wills, Asia
Pacific managing director of State Street Global Advisors, whose
emerging Asia equity fund returned a net 7.5 percent in dollar
terms in January compared with the benchmark's 5.9 percent.
"Markets are basking in the China growth story and have
discounted, for now, trade war threats."
Still, others are cautious.
Credit Suisse has downgraded Asian stocks to neutral,
warning that despite the region's positives the risk of
protectionism and a stronger dollar remain concerns.
Indonesia, with a widening current account deficit, and the
Philippines, with a worsening trade deficit, have seen the
biggest outflows this year.
Deutsche Bank Wealth Management Asia-Pacific chief
investment officer Tuan Huynh has reduced the region to a small
underweight from neutral, as it has exceeded its 12-month
target, but recommended buying on dips.
(Editing by Jacqueline Wong)