Mood Brightens in Asia

BEIJING -- Remember the sudden bust of panic selling that stunned investors in early May and into June? Investors in Asia can take some comfort in knowing there has been a stealth recovery.

The benchmark Hang Seng Index in Hong Kong has now recouped most of its early summer losses. After falling nearly 11% between its mid-May peak and the middle of June, it has now almost pulled even with its starting point of three months ago. Even after Friday's 0.9% drip, which put the Hang Seng at 16,887.50, the index was only 1.5% below its pre-selloff level.

So what's in store for China now? Will the rosier mood hold? Recall that the flight from stocks in Asia was based on fears that rising interest rates around the globe could quash growth and that a corresponding U.S. slowdown might smack export-oriented Asian economies.

On the first point, the mood has gotten a little sunnier as investors have gotten used to the idea of central banks in tightening mode. Within Asia, central banks in Japan, Korea and India have all hiked interest rates over the past couple of months, but catastrophe has not ensued. And after Friday's weaker-than-expected U.S. payrolls report, investors are confident the Federal Reserve can take a breather.

All of this helps to explain why the Hong Kong index has been on an upswing.

"Once the dust settles, the portfolio managers start to reassess the situation and become more selective in redeploying their money across markets," says Wang Qing, an economist at Bank of America, who believes Hong Kong deserves to be one of those places. "We, in general, believe many countries in emerging Asia still have strong fundamentals, even though global liquidity is tighter than before."

Wang says that as long as the U.S. economic slowdown is orderly, countries in Asia -- including China -- should be able to manage.

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