LauraMandaro

SAN FRANCISCO (MarketWatch) — Emerging Asian markets won’t be able to sidestep the economic slump and investor panic that would follow a full-scale meltdown in the euro zone.

That prediction makes Christopher Wood, equity strategist at Hong Kong-based brokerage CLSA, reluctant to put any new money into Asian stocks and related assets until European policy makers find a big fix to their sovereign-debt woes.

Christopher Wood of CLSA.

And when he means big, he’s talking about a solution that many pundits view as desirable — but nearly impossible to pull off in less than several years. That is, a fiscal union in Europe that would bring together the tax regimes and possibly the debt issuance of the countries now joined in a common currency bloc.

“They haven’t got years, they’ll have to move a bit quicker than that, otherwise the whole thing will blow up,” said Wood while in San Francisco for a CLSA investment conference last week.

Author of the “Greed & Fear” newsletter and a former journalist with the Economist, Wood has long favored Asia and emerging markets over U.S. and European counterparts. His pessimism about the U.S. financial system predates the 2007 housing crisis, which he was credited with forecasting. Read 2007 profile of Wood in the U.K.’s The Telegraph.

He hasn’t turned any more optimistic on the Western world, where the U.S. is in the process of an “extended deleveraging cycle” as income growth stagnates and lenders retrench. Expect economic growth of 1% to 2%, he says. Watch March 2010 inteview with Christopher Wood.

But he also holds no hope that Chinese, Indian and other economies will emerge unbattered from the shock and disorder of a European Monetary Union break-up, the kind of messy scenario feared if Greece — or even worse, Italy — abruptly stops paying on its debt.

Asia economies can’t decouple from Europe. And markets are cleaving too closely to the risk-on, risk-off routine that sends money flying out of a broad range of assets, including equities off all stripes, when sentiment sours.

“Right now, Europe is the only thing that matters,” he said.

1. Buy senior gold miners

Not surprisingly, a pessimistic take on large swathes of the global economy has translated to a longstanding bull call on gold. He’s been forecasting bullion at $3,500 since December 2002 as a hedge, as the “massive financial excesses. still prevail in the Western world.”

The most-actively traded gold futures contract GC1Z on Wednesday traded at $1,767 an ounce, or about five times higher than when Wood make that call. Read more on current gold prices.

Financial system fault lines

Fears about Europes debt crisis is another reminder of the fragility of the U.S. financial system and its overseas exposure.

Recently, Wood increased his recommendation for long-only, dollar-based pension-fund investors to place 30% of their assets in physical gold bullion, on expectations that an extension of the extraordinary stimulus measures conducted by the Federal Reserve would extend to other central banks, such as the European Central Bank.

“The only surprise to me is that gold isn’t higher,” said Wood. Betting on government profligacy is still a theme for Wood, who calls Republican presidential candidate Herman Cain’s controversial “9:9:9” proposal for streamlining corporate and personal taxes “extremely simple but utterly sensible.”

But if you’re already awash in gold bars, other related assets may offer better entry points.

Senior gold mining stocks — the largest gold miners like Newmont Mining Corp. NEM, +0.04% Barrick Gold Corp. ABX, -0.56%  (ABX), Goldcorp GG, +1.45%  (G) and AngloGold Ashanti Ltd. AU, -4.53%   — have been laggards. But the group is beginning to move, he points out. Read Commodities Corner on the safe-haven opportunities in gold mining stocks.

The Philadelphia Gold/Silver Index XAU, +0.01% which includes these stocks, has slid 9% this year compared to a 1% loss for the S&P 500 SPX, -0.61%   and a 24% rally for gold futures. But value hunters have improved gold miners’ near-term performance. Month-to-date, the Gold/Silver Index has risen 2.5%, outpacing both bullion and the U.S. stock market.

Other pluses for big gold-mining gold stocks, Wood says: Production costs that have slipped below the gold price and the unwinding of hedges that allow miners’ bottom lines to get the full impact of rising gold prices.

Wood also likes the move by some big miners to increase their dividends, or in the case of Newmont NEM, +0.04%  and Eldorado Gold Corp. EGO, +2.54%  (ELD) (EAU) , to link their dividends to the price of gold.

“The time has now commenced to play catch-up,” he wrote in a recent Greed & Fear newsletter, where he strongly recommended core positions in the largest gold-mining stocks.