Regional markets have rallied on the back of recent data from the US economy which showed rising home sales and durable-goods orders, and smaller job losses, as some interpreted it to mean that the economy is bottoming out. Federal Reserve chairman Ben Bernanke had said in an interview in mid March that "green shoots" of economic revival are already evident. However, tough times are still in store.

“Challenging is an understatement, let’s call a spade a spade. The external environment for Asia will be extremely difficult going into the second half,” says Jimmy Koh, first vice president and the head of economy-Treasury research and investor relations for United Overseas Bank Ltd. “We are going into the second phase of the slowdown, the broad impact on the economy. This hasn’t really been seen yet.”

While recent economic data could mean that the US economy is bottoming out, he adds that that doesn’t necessarily mean a recovery is imminent. “Financial markets tend to have false starts – we had one after the collapse of Lehman Brothers in September last year. Right now, the financial system is going through the process of price discovery, which takes time. Any ‘green shoots’ may take a long time to grow.” But he adds that there are the right policy responses such as those by governments of Singapore and Malaysia, which are targeted towards areas like employment and credit.

Koh points out that growth of the last two years was unsustainable and that with the collapse of the securitised debt markets and deleveraging of financial markets, economies will revert to trend growth (the long-term, sustainable rate of growth that an economy can bear). “Global exports and GDP will to closer to numbers we saw in 2003 and 2006. There will be a move back to basics - in terms of consumption, and for businesses to gravitate back to commercial banking.”

As for currencies, Koh expects the US dollar to weaken once the environment stabilises but added that another shock, such as a possible bank collapse, could trigger a collapse in equity markets and a rise in the dollar again. Koh is positive on commodities’ fundamentals, which he points out ‘are finite, while the credit creation ability of central banks is infinite.’ “But the environment needs to be more stable and for confidence to return first, before people will put money on the table again.”