After a period of central bank tightening, monetary policy is being loosened, which is allowing economic growth to be stabilized. This is particularly true for Asia's largest economy, China. Concerns that the Chinese economy was headed for a hard landing helped to keep equity returns in check for much of 2012. The collapse in corporate earnings added to investor uncertainty. Investors have reacted favorably to the recent easing moves and the increased expectations of earnings upgrades in early 2013. China is not alone in enacting easing moves, which provides further support for my positive view.

Loosening monetary conditions across the region should drive an uptick in industrial production, spurring economic growth. Historically, this is the type of environment where Asian equities should perform strongly. Globally, equities are underowned, with fixed-income assets receiving the majority of capital flows in 2012. This is equally true for Asian equities.

Regional markets are cheap relative to their history, with the MSCI Asia ex-Japan Index currently trading on 11x forward price-to-earnings. Broadly investors remain very defensively positioned, as evidenced by the price differential between "quality" and "risk" stocks. Investors have been willing to pay a premium for a level of "certainty" in their equity investments, driving up the price of defensive stocks. Skepticism remains, even as there are signs the cycle is turning. This provides a clear opportunity to be ahead of the curve.

At a tactical level, it is most likely that the sectors with the most depressed valuations will lead a rally. These include industrials and both hard and soft commodities. From a longer term perspective, non-bank financials, healthcare and consumption-related stocks - particularly now the excess inventories seen in 2012 are coming out of the system - look particularly attractive.

The hunt for yield will continue to be a driving factor for investors in 2013. Asian equities offer a differentiated approach by providing "yield with growth", allowing investors to gain income from companies outside of the traditional defensive sectors in addition to benefiting from structural growth opportunities.

As the concerns of a hard landing in China or disorderly power transition fade, investors are likely to look more closely at the favorable fundamentals. India is another market which has a great deal of potential. The reform agenda which is being brought before parliament in coming months will be critical in outlining India's growth path for the next half-decade. ASEAN markets are also attractive, particularly companies that can benefit from increasing domestic demand.

Given the undemanding valuations, strong fundamentals and improving macroeconomic environment, Asian equity is an asset class that offers a wealth of investment potential.

The author is head of Asian Fundamental Equities at BlackRock. The views expressed here are entirely his own.