The US economy is going to experience a significant slowdown this year. ThatÆs a given.

The question that has preoccupied fund managers in the course of the past few weeks has been whether or not the US economy is going to slip into a recession. For now, the consensus among most fund managers û based largely on pencil pushing from economists û is that the US will be able to avoid the dreaded R word. Merrill Lynch, for one, expects US economic growth to come in at 1.6% in 2008 from 2.3% last year.

Recession or not, the prospect of hard times in the US is actually seen by many fund managers as a positive for Asia. Just as Asian stock markets benefited last year from a flight to quality following the fallout from the US subprime mortgage crisis, the same scenario is expected to play out in 2008.

In terms of sentiment, talk of a possible recession may even do wonders for the performance of Asian stock markets in the coming year, says Geoff Lewis, head of investment services at JF Asset Management in Hong Kong.

ôAll this speculation about the possibility of a US recession is, in a way, good because expectations are low. That will set the stage for a rebound,ö Lewis says.

Fund managers have shaped their Asian portfolios on the assumption that the US economy will slow down but escape a recession, and this region will benefit.

ôIt is our strong belief that it would take a strong bear market in the US to affect Asia significantly,ö says Mark Matthews, Singapore-based chief Asia equity strategist at Merrill Lynch.

Certain markets in Asia û particularly Hong Kong, India and Southeast Asia û are expected to benefit from what is largely considered to be their safe haven status from the troubles in the US. Just a few weeks ago, China would have been on top of that roster of sought out markets in this region, but an increasing number of fund managers have been shifting to an underweight or neutral position in China after being overweight for many months due to concerns over valuations, an overheating economy, and rising consumer prices.

The biggest consensus overweight in Asia is Hong Kong, although with the way the Hang Seng Index has fallen 3.4% since the start of the year, one could wonder whether the fund managers themselves arenÆt yet acting on their supposed major bet for this year. Fund managers say the volatility in the market is expected to continue in the coming months. But over the long-term, they expect Hong Kong to benefit the most from the ongoing monetary easing in the US û with some expecting the US Federal Reserve to cut its key federal funds target rate to 3% this year û because of the local currencyÆs peg to the US dollar and the tendency for local interest rates to mimic movements in the US. Property and banks are the fund managersÆ biggest investment themes in Hong Kong.

India is another key overweight in Asia. In some ways, that market serves as a proxy for China. IndiaÆs economy is also growing at a breakneck pace, but the intense scrutiny over a possible overheating of the economy û which constantly hounds China û is absent.

Southeast Asian markets are expected to get their turn in the spotlight again this year, after lagging in terms of performance in 2008. However, since these marketsÆ capitalisations û especially when taken individually û are relatively small compared with the major markets in Asia, inflows this year arenÆt expected to break any records.

Fund managers donÆt appear to be bracing at all for the possibility of a US recession. If they are, theyÆre definitely not making it known that they have a back-up plan.

ôIf the US does experience a recession and a prolonged downturn, asset allocation will be very difficult,ö says John Greenwood, London-based chief economist at fund management company Invesco.

US-based David Rosenberg, North American economist at Merrill Lynch, recently wrote in a report that recession is a reality. His views run contrary to others, even within Merrill Lynch. He noted that only 18,000 jobs were created in the US in December and unemployment jumped to 5%, factors along with others that make him say the economy is transitioning into a recession.

ôAt no time in the past 60 years has the unemployment rate raised 60 basis points from the cycle low without the economy slipping into recession, and here we now have the jobless rate hitting 5% in December versus the March 2007 trough of 4.4 %,ö says Rosenberg.

Diversification is the key to staying defensive, and being defensive will help cushion the impact on portfolio investments in case the US does get hit by a recession.

Trevor Greetham, London-based director of asset allocation at Fidelity Investments, says investors looking to reduce the overall risk of their portfolios should raise exposure to other asset classes such as government bonds, cash and commodities, rather than trying to time large moves in and out of equities.