While Asian economies are better placed than some developed ones to cope with the global economic slowdown, they are not immune and will not be entirely spared from its effects, Monetary Authority Executive Director (Research) Hans Genberg says.

In the authority's weekly Viewpoint column today, Mr Genberg said the close link between the region's economic fortunes and those of the US and Europe stands in sharp contrast to predictions made.

A closer look at the data has revealed a different picture from those who adhered to the so-called decoupling theory - increasing intra-Asia trade in the past five to 10 years has made the local economies less dependent on trade with the rest of the world, he said.

Noting the region's exposure to the rest of the world's economic fortunes is not only determined by trade flows, Mr Genberg said the current financial turmoil is reminding us financial market linkages show a disturbance in one part of the system will rapidly spill over to other parts.

US credit crunch affects emerging markets

While the banking systems in Asia were not greatly exposed to sub-prime assets, liquidity dry-up in the US and Europe affects money markets, including Hong Kong.

Funds started to flow out of emerging markets bringing about reductions in asset prices and the need for deleveraging on the part of financial institutions in this part of the world as well. The credit crunch in the US and Europe is thus affecting emerging markets, too.

"Our integration with and dependence on the wider world economy is such that we must hope the pledge made by all G-20 leaders at their meeting last weekend in Washington will be followed up by concrete actions to stabilise the world's financial markets, to stimulate aggregate demand for goods and services, and to keep an open international trading system," Mr Genberg said.