Japan economy 'most at risk' in Asia

Hong Kong's stock market dropped more than 9 percent Wednesday

By CNN's Geoff Hiscock, Asia business editor

SYDNEY, Australia (CNN) -- Japan is the economy most at risk from the terrorist disaster in the U.S., according to regional analyst Richard Martin.

In contrast, China, India and Australia are best placed of the regional economies to absorb the shocks that will flow from the loss of markets, capital and economic momentum.

Martin, managing director of IMA Asia in Sydney, said Japan's insurance sector was likely to take a massive hit.

Given the fragile nature of its highly leveraged banks and corporate sector, and its weak government, this could tip it into crisis.

Months to assess exposure

The size of Japan's exposure to insurance claims was the factor that needed to be assessed, he said. This would take months to become apparent.

Martin said only Japan, Australia, Singapore and Hong Kong had the sophisticated insurance and reinsurance sectors in Asia that would be impacted by the U.S. disaster.

But Australia, Singapore and Hong Kong had much greater resilience than Japan. While their stock markets would tumble -- as happened Wednesday -- they had the resources to manage their way through.

The Nikkei dropped to 9604 before midday Wednesday, before recovering slightly to be down about 6.3 percent at 9646. Hong Kong's Hang Seng Index plummeted 9.5 percent, crashing almost 1000 points to 9425.97.

Martin said Australia, for example, had managed to cut its debt levels, its economy was moving ahead and its corporates were in good shape. It would take a knock, but not a giant one.

Singapore to manage way through

Singapore, despite the U.S.-focused nature of its IT and petrochemical sectors, had a capable government that would manage the economy.

Taiwan, another economy with a heavy IT exposure to the U.S., had massive savings that would help it through. The same applied to Hong Kong, which would also be helped by its links to China.

Martin said South Korea was delicately poised. It had little resilience because of its highly leveraged corporate sector. The banks and the government had little room to move.

The automotive sector had a heavy focus on the U.S., so it was likely that the already flat economy would drop 4 or 5 percentage points in GDP growth.

Some big deals in doubt

Martin said the big rescue deals for Korean corporates such as Daewoo, Hynix and Hyundai Securities were now at risk.

China, because of its isolated financial sector and the strength of its domestic economy, would be resilient. But its heavy exports to the U.S. would see its growth rate drop markedly.

Martin said that in a sense, India's IT sector had already taken its pain through the layoffs flowing from the U.S. high-tech downturn. Exports were still a small part of its GDP and it was not reliant on the inflow of foreign funds.

For Indonesia's already shrunken economy, there would be little impact. Malaysia had weak corporates but a resilient financial sector, while Thailand would be fairly hard hit because it had not acted quickly enough to clean up its non-performing loans.

Martin stressed that the enormous claims flowing from the World Trade Center disaster would force global insurers and reinsurers to liquidate their stockholdings. This would have a big impact on regional stock markets.