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From an investment perspective, it’'s easy to adopt a sanguine view of Asia. The region’'s growth rate- expected to hit 5.1% this year-continues to incite envy from its peers in the developed world. Equally significant is the fact that the continent occupies the quality end of the emerging-market (EM) universe, making it more appealing to investors. However, that’s not to say that the region is immune from the global economic slowdown.

In our view, the economic downturn in Asia has yet to hit a bottom. Although global risk sentiment has improved in recent weeks, stubbornly low economic growth and low inflation leave markets vulnerable to a reversal in sentiment. We expect a prolonged bottoming-out process and believe subsequent growth will be “"L-shaped.”"

As the world’s growth engine, the shape of Asia’'s recovery has enormous relevance to investors. There are two key reasons why we believe that an L-shaped growth path looks most likely: first, there are numerous headwinds to growth; and second, the region'’s government's’ ability to revive growth-from a policy perspective-is somewhat constrained.

Asia'’s economic growth is typically tied to the global industrial cycle, which has been dampened as a result of deteriorating business investment, itself a consequence of the uncertainty brought about by the U.S.-China trade war. Fixed asset investment growth in the region has already slowed significantly on a year-on-year basis from 5.1% at the start of 2018 to just half a percent in mid-2019. Notably, given that the cumulative impact of the trade dispute has yet to be fully reflected in the economic data so far, it'’s fair to surmise that Asian exports are likely, to remain sluggish through 2020.

China isn’'t coming to the rescue: Over the past decade, the global economy has grown accustomed to relying on Chinese stimulus to rekindle growth. Previous slowdowns, most notably in 2008/09 and 2016, saw China unleash huge lending programs to spur construction, reviving the domestic economy and giving the global economy a nice lift along the way. Interestingly, although growth in China has slowed to its lowest level in nearly three decades, policy response to the current downtown has been limited to measures such as tax reforms, cuts to bank reserve requirements, and tweaks to local government bond issuance.

We believe Beijing will have to accept that it might miss its 6% GDP growth target for 2020-a development that would mark a critical turning point in the global growth cycle. Of note, we believe the Chinese government’'s restraint can be traced back to how previous rounds of credit-fueled stimulus aggravated problems in the financials sector. Given the authorities'’ stated preference to avoid fueling financial instability, the scale of any forthcoming stimulus will likely be limited in scope and insufficient to reflate the global economy.

What is the expected growth rate of Asia this year?

A) 4%

B) 5.1%

C) 6.2%

D) 7.1%