Fund managers and analysts who are convinced that Asia will provide the best opportunities for investors in the future cite the same reasons: Asia's relatively strong economies, robust domestic consumption, healthy reserves, and a more formidable financial system that learned the lessons of the regional financial crisis of 1997-1998.
Within Asia, China and India -- albeit to a lesser degree -- remain the standouts.
ING Investment Management notes that China is a relatively large domestic market and is generally better equipped to withstand a decline in world trade. Its public finances are in order and its current account balance is in surplus. India, meanwhile, has a large domestic, although relatively closed economy, that depends on exports for 23% of its growth compared to 32% for China.
"The recent decline in exports seems to have affected the generation of economic growth in China relatively strongly. However, the country is also keeping to its tradition of boosting domestic growth when exports fall, mainly by promoting infrastructure projects," says Rob Drijkoningen, head of global emerging markets at ING IM Europe. "Of all the emerging economies, China has the best opportunities to adopt a flexible monetary policy and stimulating fiscal policies. China can consequently act as the engine of the region."
Indeed, China's growth prospects continue to benefit the entire region.
As it is, Taiwan has benefited from expectations of larger Chinese investment flows after China Mobile agreed to buy 12% of Far EasTone last week, according to a report from Calyon.
Meanwhile, Hong Kong and Taiwan stock markets rose the most after CLSA's China PMI increased further in April, getting above the 50-threshold for the first time since July 2008.
Even though China's growth is much more artificial today compared with one year ago --relying more on the stimulus package, and less on autonomous private demand -- the result is more Chinese authorities have managed to stabilise the economy and China is not going to go through a recession for now.
Meanwhile, Macquarie's regional economist Bill Belchere believes that high-beta Asia -- Taiwan, Singapore and Korea -- could surprise on the upside. He also remains relatively positive on Indonesia and China from a macro standpoint.
The biggest risks to the region, Belchere says, are rising oil prices and increasing concerns about the sustainability of growth in India, Korea and the Philippines.
According to Belchere, Asia has already experienced and survived the drop in global export demand as well as the shockwaves from the global financial crisis. He says the external adjustment is complete and the weakest economies in Asia are now running current account surpluses versus current account deficits in the second half of 2008.
