Markets can't tell you anything because they're mere social constructions. And one group of people who construct markets are analysts, who drive markets up or down with decisions sometimes based in fact and sometimes in mere speculation, probably by reading tea-leaves. And they drive the herd. So, if you're an investor madly plonking money hoping to get rich fast, and you've been putting all of your spreads in Asian stocks because you believe what the 'markets' have been telling so far, then you've been listening to the wrong crowd and praying to the wrong gods. Because the smart money isn't in Asian equities. You should be looking at Europe.

Ask Robert Lind, head of economics and strategy, and Rolf Elgeti, head of European equity strategy, at investment bank ABN Amro in London. Elgeti and company have just returned from a fact-finding mission of Asia-Pacific key investment centres, and they're dismayed at the blinkered view of Asia's investors. Asian investors have been overlooking value in Europe. "The rest of the world has been too dismissive of Europe," Lind says. "In Asia, and to some degree in the US as well, there has been this perception that Europe is a basket-case, so why would you buy anything there?"

Good question. But the answers aren't simple either. For starters, where does the 'burgeoning Europe' story begin: equity markets or the European economy, or indeed national economies that now straddle euro zone as an expanding trading bloc? Then there's the question of which Europe old or new? All this before you even begin plotting if the smart money is headed to Europe if at all. The likes of Lind and Elgeti may be singing Europe's praises but not everything is so rosy.

Lind says Europe is in the last phase of a "very intensive" cyclical story. "The global growth cycle is going to continue, and the fact that the Asian economies might be slowing, is going to cause doubts about where to invest. So there's a natural willingness from investors to consider places like Europe where you can at least tell a reasonable value story." Lind says now's the time to move away from "high risk stories that have run a long way" into more defensive holdings in areas that have lagged the global boom, especially as short-term interest rates start to rise again and yield curves flatten. Which is where Australia and most of fast-growth Asia are now placed amid rising risks.

Best value story

Luckily Europe is a long way from such risks. From a global equities perspective Europe is the best value story as rising interest rates will compel investors to seek out lower-risk investments. That means 'old Europe' whose internationally competitive industrials could benefit more as the Asian and US rivals start to feel growing inflation and pricing pressures. Old European industrials aren't likely to feel rate rise pressures because eurozone interest rates will stay low until GDP growth picks up substantially. That's still a long way off in old Europe, given that two of Europe biggest economies, Germany and France, are so recalcitrant to continue to pursue reckless fiscal responsibility to the point of making the entire eurozone's Stability and Growth Pact a complete farce. So who are Germany and France to hector and lecture former communist states to exercise fiscal prudence?

Whatever European bourses have been doing lately only gives lie to the fact that European GDP growth is on the up-and-up. Truth is, it's not. And if you believe the mantra of equity analysts or, worse, free-market economists, they all point to the robustness of growth in eastern and central Europe. These range from 3.6% in the Czech Republic, through to 3.7% in Hungary and 4.7% in Poland, to a regional boom of 5.3% in Slovakia. On these numbers alone, the market mantra is that average GDP across new Europe is around 50% of the level of old Europe. And with substantial catch-up potential, there's no stopping the eurozone economies from chalking up a virtuous growth cycle.

And here's their Holy Grail standard, if unthinking, Economics 101 stuff: high growth will bring down unemployment, produce greater productive potential of capital and labour in the wider economy, boost wages growth and consumer spending power and Bob's your uncle future growth prospects are irredeemable. The course of history is set. If you believe this bunkum, you probably also believe in fairy tales. Because that's all this is: a fairy tale. Not that Lind or Elgeti of ABN Amro will ever entertain the idea.

A string of 'complications' endogenous and exogenous factors seem likely to spoil the analysts' party of self-delusion. Take a simple one: the spectre of rising currencies which could easily become a problem of success. And it's already started to happen. Eurozone governments, desperate to boost growth and attract foreign investors a strategy which has been working is already facing the 'unintended consequences' of currency appreciation, thanks to rising inflows of foreign cash. Remember Asia in the late 1990s?

When currencies rise as rapidly as Asia's did, governments resort to all kinds of manipulations, including governance shenanigans, in a bid to on the one hand protect crony industries from foreign competition and on the other hand to stem the loss of competitiveness in world markets. Classic case: China. Once exports loose steam, and if the whole economy has been riding on export dependence and little else something starts to hit the fan and it's not what you think. The current account deficit becomes a monster most governments feel too inept to handle. Classic example: the US. And on the margins, officialdom will try to dampen fears of interest rates crashing the deluded politicians' grand promises. But forget it: cutting interest rates can just as easily dent speculators' appetite.

Investors then start looking for new heavens to exploit cheap labour and other lowly costs. Just ask Thailand which took investors away from Malaysia and Singapore and Indonesia as China has from the rest of East Asia. So where will investors go next in Europe? Mercifully, not too far away Romania and Bulgaria, both already being primed to join the European Union in 2007. So all's hunky dory, right?

Wrong. Because if investors head for such cheap low-cost centres in droves, the foreign direct investment elixir that one Southeast Asian feisty trade minister keeps harping on like a broken record is likely to go flat as the minister found out in 1997 and what's more, with alarming speed. Have politicians the stomach to take on real economic reforms? Answer: look no further than Japan's Prime Minister Junichiro Koizumi. Since taking office, and for all his 'bravado no pain no gain' spiel, Koizumi hasn't only dithered, he now simply refuses to walk the talk. Old Europe has shown it's got the Koizumi tapeworm. Old Europe can't cut the mustard. Odds on new Europe's the same.

MANJIT BHATIA, an academician and writer, is also research director of AsiaRisk, a political, economic and risk analysis consultancy in Australia. He specialises in international economics and politics, with a focus on the Asia-Pacific.