Merrill sees Asia gains from gradual U.S. slowdown

Merrill sees Asia gains from gradual U.S. slowdown

BANGKOK (Reuters): The U.S. economy is likely to slow down only gradually and will continue to draw high technology products from Asia, U.S. investment bank Merrill Lynch said on Tuesday.

William Belchere, head of Merrill's Asia Economic & Fixed Income Research and Strategy, told Reuters the region's technology sector was expected to benefit from U.S. demand for electronics.

"I believe that the global cycle, while it may moderate a bit, is going to remain strong and there is not going to be sharp downturn," Belchere said in an interview.

"We do believe the U.S. is going to have a soft landing and the Fed will remain on hold" on interest rates.

While investment in interest rate sensitive sectors in the United States was slowing down, Belchere said investment in information technology related sectors continued to rise.

"It is good for Asia because we produce the stuff," he said. North Asia is a major producer of semiconductors and other products for the capital goods sector in the United States, while Southeast Asia produces electronics for U.S. consumers.

If there was a "hard landing" in U.S. consumption, Belchere said Southeast Asia would be hurt more severely than North Asia because Southeast Asian nations exported more consumer electronics goods than North Asia.

"So you have the consumer cycle turn down. That is going to put a cap on the exports to Southeast Asia and may lead them to slow down a little more quickly than north Asia," Belchere said.

Belchere said Taiwan was the most flexible and efficient and had strong economic fundamentals among other North Asian economies -- Hong Kong, South Korea, China and Japan.

In Hong Kong, Belchere expected economic growth to peak in the first half of 2000 as its "old economy" was likely to grow slowly due to high real interest rates. But the "new economy" would continue to expand, he said.

In Southeast Asia, Singapore is the strongest of its peers with an economy expected to grow about seven or eight percent this year, slowing slightly next year, and benefiting most from the resilience of the U.S. economy, he said.

Malaysia's economic fundamentals looked solid but the country lacked transparency and structural reforms were slow, Belchere said.

"Malaysia, it looks solid, but to tell you the truth, who in the hell knows what is going on inside and outside -- (it is) extraordinarily non-transparent," Belchere told a business gathering.

Belchere said he saw other "difficult stories" in Asia, especially the political leadership of the Philippines and Indonesia.

"(In) the Philippines, Estrada is Estrada and will be Estrada for the next three years, and that is not hopeful," he said referring to President Joseph Estrada.

For Thailand, Belchere said the country did not get as much credit as it deserved for its commitment to structural reforms. "In Southeast Asia, we see strong leadership out of Thailand. We hope after the election that continues and I think that would go a long way to spark investors' enthusiasm."

Belchere said he had told his clients not to underweight the three countries.