DIFC Economic Forum defines hot investment vehicles for 2008

But Stephen Roach, Chairman of Morgan Stanley
Asia, issued a stark warning about what he called 'the myth of Asian decoupling'.

Far from banking on their immunity from any new woes in the world's biggest economy, the MENA and other nations need to be concerned about 'spill-over', he said.

The biggest consumption binge by the biggest consumer in the world has been housing-dependent, not income-based, Roach said. Borrowing against the inflated value of their homes, Americans brought consumption to 72% of US GDP. 'And that's over. Done. Finished',
Roach said. With the sub prime crisis still playing out and house prices falling, the US will likely enter recession in 2008, Roach warned, cooling the voracious consumer demand which helped fuel China's double-digit growth
rate.

He noted that US consumption is worth $9.5 trillion, compared with $1 trillion in China and $650bn in India. 'If US consumer spending slows
in a material way, it is mathematically
impossible for China and India to fill the void', Roach told attendees at DIFCweek.

The cooling US ardour for consumer goods will, therefore, almost certainly negatively affect emerging Asian economies, since 'the dynamism in Asia is export and investment led, and that
investment itself is led by exports', Roach said.

'Although there is a lot of trade integration within Asia, there's a question about what makes up that trade. With consumption there going down, the end market demand is still the United States and Europe zone. Europe is already slowing due to credit issues, and the United States is likely to be in recession'.

China has the resilience to sustain reasonably big shocks, but 'I think the emerging markets are going to be in trouble', Roach said. On the other hand, China has been heeding that old
adage against putting all one's eggs in one basket, said David Hale, Founding Chairman of Hale Advisors.

'There was a rule of thumb among China economists two years ago that every percentage decline in US GDP growth reduced Chinese export growth by 8%', Hale said. 'Over the past 18 months, the US economy has gone from a growth rate of 4% down to 2%; China's export rate of growth has only slowed from 30% to 26%. Why? Because China's found lots of new markets, including Europe,'

Hale said.

Increasingly, it appears that the quest for 'safe havens' rather than 'hot growth prospects' could be the goal for institutional and individual investors in 2008. Indeed, one question texted from the floor asked: 'Where does the smart money go? Under the mattress!'

However, Richard Gibbs, Chief Economist and Head of Economics at Macquarie Bank, said he did not see the demand for infrastructure declining; if
anything, a cooling-off could help drive prices down from some of the 'inflated' bids which the sector has seen.

There were also 'competing tensions developing' between the emerging economies, which must improve their infrastructures to continue to develop, and the developed economies, which need to replace their existing, ageing, infrastructures, particularly in Western Europe and North America, Gibbs said.

The 'hot spots' within the infrustructure sector will likely be in energy production and distribution; Rapid Mass Transit; water, and sanitation.

Roach declared himself 'cautious on major markets over the next three to six months... major asset classes, equities in particular, are in trouble'. But he agreed that he felt optimistic about 'the infrastructure play, and the developing Asia consumer play'.

David Hale felt the Euro will continue to hold ground, but the dollar's continued weakness will further fuel demand for gold, quite possibly driving it to $1,00/ounce in the coming months.

Norbert Walter, Chief Economist of Deutsche Bank Group, agreed that Indian and Chinese demand in particular could fuel gold's rise. But he added that there is so much sovereign wealth seeking a home that 'liquid, reasonably priced equity markets' will be hot spots, as well.

There was one further sober note for those in the MENA economies, however. Stephen Roach argues that, if a US economic downturn does indeed pull down China's growth rate, then MENA
investors' assumptions about everhigher oil prices will prove ill-founded.

'This is the biggest energy-intensive consumer of oil in the world today', Roach told his predominantly MENA-based audience. 'If you in this region don't think that's going to have an
impact on the oil price, I think you are in
for a rude shock'.