ANALYSIS-Inflation delivers emerging Asia stocks to the bears

By Kevin Plumberg

HONG KONG, June 6 (Reuters) - Emerging Asian stocks have been hammered as a growing inflation problem slices into domestic growth, paving the way for a bear market after five years of double digit returns.

Consumer prices are expected to continue to soar, as governments across Asia cut energy subsidies to save their budgets. As they do, expect more pain, especially in countries with low or no current account surplus that import a lot of their food and energy needs, such as India, South Korea, the Philippines, Thailand and Vietnam.

In those countries -- especially those with exchange rates tightly woven to the U.S. dollar -- governments have relatively few weapons at their disposal to shield consumers from higher prices.

The attraction for investors of low labour costs, high productivity and, most importantly, solid returns has faded.

Asian equities excluding Japan, which returned an average 28 percent between 2003 and 2007, have bounced from their March lows but are still down more than 10 percent year-to-date, according to an MSCI index .MIAPJ0000PUS.

"Global inflation will be a big determinant of whether we will get a bull market in stocks again because it's a big worry now," said Geoff Lewis, head of investment services for JF Asset Management in Hong Kong.

Lewis' firm, which oversees about $65 billion, sold some of its Chinese stocks last month due to inflation concerns.

In the last few months, Asian political leaders have had to bow to oil prices CLc1, which have doubled in the last two years, and to the surging cost of grains and other food items.