Asia's sensitivity to U.S. woes declines

You can't blame Asian investors and exporters for being jittery about bad economic news from across the Pacific Ocean: Asian exports vaporized in the face of the U.S. dot-com crash five years ago.

Worries about the U.S. housing market hammered stock markets across Asia last week.

But many economists argue the fears are overblown and outdated: They say Asia isn't as sensitive to the ups and downs of the U.S. economy as it was just five years ago.

Banking giant HSBC this summer raised its forecasts for Asian economic growth despite worries that falling housing prices will force U.S. consumers to cut spending. "Asian exports have been diversifying away from dependence on U.S. demand," HSBC concludes.

The word the economists are arguing over is "decoupling" — a break in the link between Asian exports and U.S. consumers. "Even if the U.S. consumer does go into recession, the overall impact on Asian exports should still be much lower than the last time around," investment firm UBS Securities Asia said in a report last week.

Last time around, when the U.S. dot-com bubble burst and U.S. tech firms canceled orders in 2001 and 2002, Asian exports plunged 15% for several months from year-earlier levels in what UBS ubs calls "the worst external shock in postwar Asian history."

But times have changed. Asia's dependence on the U.S. market has steadily declined. The U.S. share of Asian exports fell from 23.7% in 2000 to 17.9% last year, according to figures from the International Monetary Fund and HSBC.

Those figures likely understate U.S. influence: Asian countries often sell each other components and raw materials that are assembled into products that wind up in the United States.

Other markets, such as the European Union and China, have made up for economic wobbliness in the USA. "Europe is no longer the sick man of the developed world," HSBC economist Peter Morgan says. Domestic Asian markets are stronger than they used to be, too.

Asian governments have kept a lid on inflation and interest rates, and Asian corporations have sharply reduced debt. The economies that dominate the region — China's and India's — have proved resilient in the face of past U.S. economic weakness. And in smaller economies across Asia, construction spending is booming, UBS notes.

Not everyone is so sanguine. Researchers from investment firm Credit Suisse, cs for instance, argue that Asian exports still depend more than anything else on sales in U.S. stores. A 1% rise in U.S. retail sales means a 1.3% rise in Asian exports. "It may be tempting to conclude there exists a correlation breakdown between Asian exports and the U.S.," Credit Suisse says. "We don't think so."

"We're not completely immune to a U.S. slowdown," concedes Wong Sen Wun, regional economist at investment firm CIMB-GK in Singapore. "Perhaps we would see a slowdown in growth if the U.S. slipped up. But we won't tilt into a recession."