HONG KONG, China – The Hang Seng is up 80 percent since March. Hong Kong recently emerged from the recession. And in this volatile housing market, property prices here - always a closely watched indicator - are on the rise again.

Take a walk through one of Hong Kong’s sprawling malls, or try to fight your way through the congested stores in Causeway Bay, and it’s clear that shoppers are out in force.

Many are holding the view that the worst is over. They might be right.

But Stephen Roach, chairman of Morgan Stanley Asia,  says caution is still the key. In a chat with Biz Clinic, Roach gives his views on where things stand.

The markets: The markets are “a lot stronger than the underlying state of the global economy,” says Roach, who previously was chief global economist for Morgan Stanley for more than 15 years. That will raise some real risks for equities in the second half of this year.

It’s important to remember that as much as 75 percent of the world’s economy has been contracting, and the American consumer remains “dead in the water” right now, Roach says. “When markets go up, memories get short.”

The housing myth: The focus on the U.S. housing market is “overblown,” Roach says. In his view, the damage has already been done. And even if housing does stabilize, consumers are still “stuck with too much debt on overvalued homes,” he says. “And now they’re stuck with job and income problems on top of that.”

Shooting down ‘green shoots’: It’s been the catch phrase of the recovery, but Roach shrugs off the idea of so-called “green shoots.” “(It’s a) fiction that’s been woven around liquidity driven markets,” he says, and the current “green shoots” will not blossom into large plants or bushes.

Keys to recovery: Here is what needs to happen for a global recovery, according to Roach :  

1. First, the world needs another consumer than the “overly indebted, savings-short American consumer.”
2. Second, we have to watch private debt levels, as well as public debt levels brought on by the massive stimulus programs all over the world.
3. There needs to be job growth. Without that, Roach says we could see “a recovery with limited staying power, and one that is anemic at best.”
4. And lastly, the United States has to save again, and excess savers in Asia have to start spending again. If that doesn’t happen, Roach says he’ll be “very cautious about the prognosis for the global economy.”