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Asian economies can ride out stocks plunge: analysts

business Updated: Jan 22, 2008 15:43 IST
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Plunging share prices threaten Asian economies but they could still keep growing despite any US recession as long as the rout does not worsen, analysts said on Tuesday.

Trading screens were awash in red this week as investors dumped stocks, fearing a plan by US President George W. Bush for a 140-billion-dollar stimulus package to revive the world's biggest economy was too little, too late.

Hong Kong slumped nearly nine per cent on Tuesday, its worst one-day fall ever, as Australia and China crumbled more than seven percent on worries that US woes will hit Asia's exports, but analysts said the region was still set to grow.

"Will the falls hit economic growth? I think that's very marginal," Pierre Gave, an analyst at Hong Kong based consultancy GaveKal, told AFP.

"It will affect sentiment, but shopping malls here in Hong Kong are still pretty full, the hotels are fully booked and I can't really see growth all of a sudden slowing down," he said.

A sustained Asian bear market would crimp growth, but the region's shares have not yet slumped that far, Gave said.

Optimists say that if exports to the United States slow down, Asia's huge foreign exchange reserves can fund massive infrastructure spending programmes to keep growth going, while cash-rich governments can cut taxes.

Booming China alone accounts for more than 1.5 trillion dollars of those reserves -- and experts say it could help buffer Asia from the worst of the fallout from the United States by driving regional trade.

"China's economy is still very, very strong," said former Morgan Stanley economist Andy Xie, who is based in Shanghai.

"The most vulnerable economies are Japan, Taiwan and Singapore, as they are most dependent on the US. The Southeast Asian economies have been benefitting from high commodity prices," he said.

One country that could cut taxes if necessary was South Korea, said Young Sun Kwon, an economist at Lehman Brothers.

"The equity market sell-off could have a negative impact on the country," he said, but added that his firm still expected South Korea's economy to expand by more than four percent in 2008.

Xie estimated more than one trillion dollars of cash would disappear from the world's financial system because of a mortgage default crisis among so-called subprime, or riskier, US borrowers.

The crisis has caused huge losses at international banks and led to a global credit crunch, stock market turbulence and a possible US recession, according to analysts.

"If Asian share price falls continue like this for another two or three days, that could hit people's consumption habits. But the falls aren't sizeable enough yet," Matt Robinson, an economist at Moody's Economy.com, told AFP.

There was speculation that the US Federal Reserve could make an emergency interest rate cut soon, the Sydney-based economist said.

"That would be like a circuit-breaker to stop the contagion effect," he said.

Asian politicians moved to reassure investors as share prices tumbled on Tuesday amid the international concern for Asia and the global economy.

In New Delhi, India's Prime Minister Manmohan Singh tried to calm nerves after the stock market in Mumbai slumped more than seven per cent during Tuesday.

"Considering the fundamentals of our economy, which is sound, I am confident that the markets that we seek will grow in an orderly fashion. Time-to-time fluctuations are part of the market processes," he said.

Japan's Prime Minister Yasuo Fukuda said his country's economy was continuing a recovery. Japanese share prices slid nearly six percent Tuesday.

"Although some areas show weakness, I recognise our country's economic recovery is continuing as the corporate sector stays solid on firm exports and production," Fukuda said in parliament.