Domestic demand to lead RI, others to recovery

Domestic demand to lead RI, others to recovery

Dow Jones, Hong Kong

The economies of China, Hong Kong, Korea, Indonesia and the
Philippines are the healthiest in Asia, and will likely swiftly
shadow a U.S. recovery in the first quarter of 2002, according to
new research published by ING Barings Thursday.

Chief Economist Tim Condon said these economies will be the
major beneficiaries of the U.S. recovery, now expected towards
the end of the first quarter of 2002 following fiscal and
monetary stimuli. But he noted the recoveries will be led by
domestic demand rather than a return of strong demand for Asian
exports.

"We will have, in Asia, an export-less recovery," Condon said.
"That means top-line growth in the economies of Asia will have to
be driven by domestic demand."

"These are the economies where we believe domestic demand is
unimpaired and could sustain top-line GDP growth in 2002."

Condon said that in 2002 Asia won't be able to count on strong
U.S. investment in information technology, which constitutes a
large component of Asian exports.

Therefore, the healthiest economies will be those which are
able to be flexible on pricing in the labor, capital and land
markets. Political stability is also essential, while regional
currencies across the board will be supported by a weaker U.S.
dollar, he said.

"As soon as the U.S. economy is seen to bottom out, this
region will...bottom out as well," he said. "Asian consumers are
looking at the U.S. economy, and once it stabilizes it will act
as a psychological boost to regional economies."

But he noted not all Asian countries will benefit equally from
the US recovery, and that countries suffering from chronically
weak domestic demand, such as Taiwan, Thailand and Malaysia, are
likely to underperform.

In Hong Kong's case, Condon said the main driver of growth
will be increasing links with China. The media, financial
services, logistics, entertainment, education, and health sectors
are set to show growth, he added. He forecasts 4 percent gross
domestic product growth for the city in 2002 - one of the more
bullish forecasts.

Condon says ING Barings' current 1.7 percent GDP growth
forecast for the U.S. in 2002 already takes into account
implications of the military buildup and the U.S. war against
terrorism.

Asian equities are positioned to benefit from capital flows
from the U.S. as foreign investors search for higher returns,
said Markus Rosgen, ING Barings' Asian strategist.

But he said rather than investing by country foreign investors
will look at the stocks with the largest market capitalization in
Asia, which would benefit big names in Hong Kong, Korea, Taiwan
and Singapore.