August 24th, 2009
07:30 AM GMT
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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.”
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soundoff (4 Responses)
  1. Per Holmlund

    Time persepctive

    If you worry about what will happen in October 2010 it will be hard to make money in the October February period 2009-10. Today there is only one alternative for politicians: Pump up the deficits.

    And don’t forget that S&P 500 reached 1500 year 2000! If it had followed the 1980 regression it would stand in 3000 and not creeping around 1000. So relatively to its own long term development the market is cheap. And with market indices flooding with technical head and shoulder reversal buy formations close your eyes and buy.

    And don’t forget to follow the gold price. Gold that will tell when/if things are becoming to abnormal.

    August 24, 2009 at 11:50 am |
  2. jassica masson

    hay

    As per the post about the business situation in Asia as well as all over the world every one needs business and want to over come the recession but the problem is that the companies that are under much pressure and want to overcome there present situation is that there cash flow system is in negative if its in positive it still is nit as much as they can give the payments of the clients

    it all happens duet o the intensive investment in the property and real estate in all over the world on mortgage and return on investment is approximately very low
    that is why every one is hit as stock market crashed
    mow the need of the hour is that we all have to unite at one plate form and do the consensus that what should be the financial structure should be in which the risk of danger is short and reliability is more

    August 27, 2009 at 3:33 am |
  3. Rambling Mind

    I think right now, everyone's hoping that the liquidity-driven rally in the financial assets markets will lead to renewed confidence that may eventually translate into confidence in the real economy.

    It's all back to basic economics, IMHO. The U.S. has been living on borrowed money for too long and faces painful deleveraging.

    August 28, 2009 at 3:05 am |
  4. A.M. Deist

    One of the commentators on the Closing Bell today was asking why Americans haven’t gone back into our equity markets. She said they have missed out on the bull run since March. That same kind of thinking would have one ask the question why haven’t everyone put their life savings into AIG. It is up 270% since the latter part of June. Or, better yet, why would anyone put their money into the US Stock Market when Brazil, Indonesia, Latin America, India, Argentina, Turkey, Mexico, Chile, etc. have significantly outperformed our S&P 500 in the last three and five year periods?

    August 28, 2009 at 8:47 pm |

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