Hot  topic: Fear, hope, and Asian growth
􀂄 Sentiment (“animal spirits,” to use a phrase from Keynes) can have both
temporary and lasting effects on growth.
􀂄 Temporary effect (1H09): sentiment should improve from the point of extreme
pessimism. (Evidence: global PMIs, freight prices, and the BAS-ML Fund
Manager Survey.) This should help Asian growth recover from its “heart
attack.＂
􀂄 Lasting effect (2010 and beyond): optimism has been demolished. Sluggish
investment and productivity could bring down average growth over the next
decade—a key lesson from Asia’s previous crises.
􀂄 Reduced long-run growth rates imply (1) lower equity market multiples;
(2) lower bond yields; and (3) lower levels for “neutral” policy interest rates.
􀂄 These conclusions support our strategy views. Asian equities should be
range-bound in 2009. We’re still bullish on local-currency government bonds.