It's clear that the increasing economic power of the emerging world could raise geopolitical risks, but that does not mean the US and Europe will inevitably decline as Asia grows, says Tony Tan, deputy chairman of Singapore's Government Investment Corporation.
"I do not see Asia aggressively challenging the global order, which has benefited Asian countries for decades," said Tan, speaking at the Swiss Re Forum in Singapore on Friday. "Asian countries, including China, generally share the view that a multilateral, rules-based international order is critical to their long-term growth and development."
Certainly, the governance and functioning of the international order -- the G20, World Bank, International Monetary Fund, World Trade Organisation and United Nations -- will be reformed to take into account Asia's rise, he says, but this is a rebalancing rather than a supplanting of the older order.
As a result of this global shift, Tan sees Asia's economic growth model coming to rely more on private domestic demand than it does now and not so heavily on exports. He adds that extensive infrastructure investment in many countries will help meet the demands of massive urbanisation.
Moreover, Asia's economic rebalancing, the expansion of intra-regional trade and improved regional growth prospects will help attract capital inflows and result in significantly stronger currencies, says Tan.
Meanwhile, Tan argues, Asia's increasing economic wealth and consumer sophistication will demand a wider variety of more sophisticated financial markets, products and institutions. Banks are likely to continue to be the core of many systems, but other markets and institutions will develop, he says.
Other firms, including Northern Trust, have made a similar point that more organisations, such as government funds, are likely to emerge in the region to finance Asian growth, in areas from social welfare to pensions to infrastructure building.
In the meantime, the relatively unleveraged Asian banks and capital markets need to take advantage of the opportunities on offer, says Tan, reiterating a comment he has made in previous speeches.
However, Tan also sounds a note of caution, saying the downside risks to the global economy have increased. He cites three broad risks: the turmoil in Europe, continued deleveraging in the US, and protectionist pressures in many countries. Hence, there is a risk that negative shocks could push the global economy towards a recession sooner than expected, he says.
Many analysts' outlooks certainly reinforce this view. In its second-quarter review released on Friday, Schroder Investment Management noted that the MSCI World Index ended a volatile quarter in negative territory, after positive momentum gave way to revived fears of a recovery slump.
"Concerns that Europe would lead the world into a double-dip recession spurred share price declines across the globe, and marked a sharp reversal in the risk trading that fuelled positive returns in the first quarter," says the UK firm. "The market volatility sent investors fleeing from equities into the safe-haven assets, such as gold and US Treasuries."
And, in Asia, downward revisions in Chinese data further compounded the global equities sell-off, pushing the 10-year Treasury yield below 3%. Moreover, the crude oil price suffered its first quarterly decline since the end of 2008, and iron ore has fallen 27% since its peak in April, says Schroders, due to slowing Chinese steel production as demand has weakened in the wake of tighter monetary policy.