This week the panel was invited to discuss the decoupling concept - the concept that Asian growth is insulated, or separated, from an economic slowdown in the Western economies. The questions were: Is the decoupling theory correct, and is Asian growth strong enough to withstand a severe downturn in the US and Europe? Ivan Leung (chief investment strategist of JP Morgan Private Bank in Asia) says that, amid growing fears of a second recession in the developed markets, hopes for Asian and emerging markets' decoupling have resurfaced. But unless a country is extremely closed, the data is clear: economic activity in both developed and emerging markets has tracked each other over the past 10 years. There was no decoupling during the 2008-09 recession and there won't be any decoupling should Europe spiral into a financial crisis or the US a severe downturn, Leung says. 'Countries around the world are increasingly integrated, and their correlations to global economic growth have steadily risen over the past few decades. Trade, capital flows, commodity prices and manufacturing cycles reinforce this fact,' he says. But, he adds, if the US has a minor recession and Asia grows (albeit at a decelerated pace), it could easily feel like a decoupling. Between 2008 and 2010, it likely felt that way for workers when unemployment in the US rose from 6.9 per cent to 10 per cent, while in South Korea it only nudged from 3.3 per cent to 3.5 per cent. The same is true for homeowners, with prices still high in Hong Kong, yet struggling in the US, he says. Yonghao Pu (chief investment strategist Asia Pacific, UBS Wealth Management Research) says Asian economic growth continues to be closely correlated to that of the rest of the world, but the extent of the impact is less than it used to be. At the height of the global financial crisis in 2008-09, US gross domestic product contracted 0.3 per cent in 2008 and 3.5 per cent in 2009, while in Asia (excluding Japan) it rose 6.8 per cent in 2008 and 6 per cent in 2009. Last year, US GDP grew 3 per cent, and Asia's soared 9.1 per cent. 'This suggests that Asia is increasingly decoupling from the West, thanks to the rising affect of private consumption to regional growth,' Yu says. He says some factors that cushioned Asia from the last crisis are intact. Many Asian countries are in good financial shape and can prevent a downturn with stimulus packages. Marc Lansonneur (regional head of investment teams and market solutions, Societe Generale Private Banking) says decoupling is not just a theory: Asian economies, backed by dynamic growth and domestic markets' consumption, managed to get through the 2009 crisis with less damage than Western economies. But he believes decoupling is still at an early stage; domestic markets still need to have more impact to achieve greater autonomy from exports. Although robust, Asian economies remain exposed to downturn: the US and euro-zone debt crisis adversely affected Asian equity markets.
