THE fate of the Asian economies may be less reliant on business cycles in the US than before, but that has not stopped wealth management advisers from advocating defensive strategies and urging patience in their clients.

Among the private banking outfits that BT spoke to, all of them are suggesting that clients in Asia look at bonds, hedge funds and big cap firms, in the wake of a falling US currency, volatile global stock markets and a US credit crunch crisis that seems to be snowballing.

Be patient: While most agree that Asia is unlikely to catch a cold if the US sneezes, the uncertain outlook is casting a dark cloud on the general sentiment

While most agree that Asia is unlikely to catch a cold if the US sneezes, the uncertain outlook is casting a dark cloud on the general sentiment here. 'While from an economic perspective, the role of US economy has reduced, its position as the world's biggest economy still remains,' said Fortis Private Banking Singapore vice-president for investments Desmond Lum. 'Looking at the stock market performances between the US and Asian indices . . . there is still strong correlation. Asia will sneeze along with the US - it is just a matter of severity and impact.'

The sentiment probably explains why many of the wealthy in Asia are still treading carefully.

'Looking at the negative performance of Asian equity markets since the beginning of the year, investors have become more cautious and many of them are currently in a wait-and-see attitude, looking to invest again once the market outlook has turned more positive,' said UBS Wealth Management head of products & services Emmanuel Bucaille.

The opinion is mixed, however, on whether such pessimistic reaction to the ongoings in other parts of the world is justified. Mr Lum noted that value appears to be emerging in the region, but this is dragged down by the bleak earnings outlook.

'Earnings growth average is expected to be between 8-9 per cent for 2008 - not terribly exciting but still decent,' he said. 'But the expectation for earnings has a downward bias as companies continue to report generally weaker business outlooks for the rest of the year.'

ABN Amro Private Banking's chief investment officer Didier Duret is more upbeat, saying that the lacklustre performance of Asian bourses is 'mainly a matter of sentiment'.

'There is no proof of a credit crunch going on in Asia,' he remarked.

Besides, the fundamentals in Asia are still strong. Apart from the decoupling theory, interest rates are still low, 'which is very positive for business', and intra-regional exports are growing steadily. A burgeoning number of infrastructure projects is also keeping the regional economies humming.

'Asian countries are (also) well known for having a very high savings rate,' said Mr Duret. 'We've observed that a high savings rate is also parallel to a high investment rate.

'For instance, if you take South Korea, savings rate is 33 per cent. And investment rate is 31 per cent. Thailand is about 30 per cent, as well as the investment rate. So this means that, okay, there is a high dependence on foreign direct investments, but domestic savings are a huge reservoir of money to be invested in the country as well.'

A common call among the three is diversification. UBS' Mr Bucaille said diversification should be carried out across asset classes, regions and sectors. There is also interest in hedge funds, which thrives on volatility.

His bank has listed Asian currencies, large cap firms in the US, healthcare companies focusing on diabetes, cancer research, and services for the elderly among the top sectors to look at. And even after the bull run in commodities in the past year, there is still opportunity for gains.

'Demand for agricultural products is rising as global population is growing and people's income is rising as well, while the supply of arable land is declining. It is paramount to increase the agricultural efficiency,' explained Mr Bucaille. 'Thus, we like companies that enhance the efficiency in agriculture so that you get more food out of one square metre of land.'

The agricultural theme also features prominently at Fortis, which is recommending holding cash, looking at infrastructure-related projects, and emerging markets in the region.

'On a medium-term outlook, value is appearing but the tricky issue will be timing,' said Mr Lum. 'It is therefore important for investors to use risk perceptions and positions rather than value to decide when to re-enter the equity and credit markets.

'The situation in the developed markets warrants a more cautious approach as there are still a lot of uncertainties for the financial sector and the broader economy. A lot of market direction and sentiment is also dependent on policy actions from the key central banks and they are now clearly very focused on preventing a systematic risk from happening within their financial systems.'

Even when investing in line with the suggested themes, Mr Duret added that it is imperative to pick out individual stocks which have displayed 'genuine and fundamental value', rather than the indices themselves. He has drawn up what he calls 'high conviction names' in a 'Rescue Basket', meant to provide guidance in uncertain times.

The list includes Noble Group, KT&G Corp, China Mobile, Sime Darby, Keppel Corp, Cosco Singapore and Hong Kong Exchanges and Clearing. As for bonds, he recommends going for high quality corporate bonds and those linked to inflation.

'The only negative points I can see in Asia are two things,' explained Mr Duret. 'One is that inflation is really accelerating and that it may, at a certain stage, require definite action (tightening of the monetary policy) from central bankers.

'And the other aspect is the lower US dollar, which is pushing to see an appreciation of the Asian currency which is not good for exports. Those two elements can potentially be a drag on Asia in the coming quarters.'

Meanwhile, it could also take months before the wary approach wears out. As Mr Lum pointed out, the effect of a US interest rate cut typically takes nine months to be felt by the real economy.

'This implies that the impact of 2007 Fed's easing will begin to unfold in late 2Q '08, under traditional boom-bust knowledge,' he added. 'Until there is stability in the US housing market, and trust is restored in the financial system, the current credit dislocation and markets' risk aversion with US Treasury bills' 1-month, 3-months and 6-months at 0.12 per cent, 0.53 per cent and 0.70 per cent (as of March 24) respectively will remain for some time to come.'