Asia has weathered the financial turmoil embroiling the West with only small signs of distress, the chief executive of HSBC Asia believes, but a full-scale recession in the United States would have a knock-on effect on Asia, regardless of arguments that the region had “decoupled” from America.

Sandy Flockhart, who runs the Hongkong and Shanghai Banking Corporation Limited, said that HSBC, the largest foreign bank in Asia, was watching carefully for signs of contagion from turbulent markets in the US and Europe. So far, there were few distress signals, he told The Times.

Mr Flockhart is the second prominent British business figure in Asia to speak out about the region's ability to withstand the downturn in the West. Mark Tucker, the chief executive of Prudential, the largest European insurer in Asia, writes in The Times today that decoupling is a recent economic fashion.

The decoupling theory holds that an emerging market economy can become sufficiently sophisticated that it no longer depends on the US, the world's largest economy, for growth.

Mr Tucker writes that there are several market phenomena that owe little to Asia's connection or lack of one with America.

Mr Flockhart agreed that Asia had its own characteristics that made drawing parallels with the West difficult. For example, he said that Asian countries with rising inflation had less ability to cut interest rates than the US. Also, he said, consumer debt levels were far lower than in the US or Europe.

Mr Flockhart said: “Last year Asia came through pretty unscathed from the fallout of the collateral damage from US sub-prime ... but if the US, which accounts for 30 per cent of the world's consumption, has a long and extended period of slow growth, then it's going to affect Asia.” He added that “from a risk perspective and a growth perspective, we're always looking for softness or credit quality deterioration ... There are short-term indicators, inventories are being kept much tighter, but consumption and overall credit quality remain OK”.

In the six months before Hong Kong was handed back to China in 1997, property prices in the territory rose 30 per cent. The bubble burst and over the following five years there was a downturn in the housing market. Mr Flockhart said, however, that the conservative nature of the Hong Kong mortgage market meant that it posed little danger to HSBC, even if an American recession spread to Asia.

Mortgage loans-to-value on houses in Hong Kong was between 40 per cent and 70 per cent, he said, compared to up to 110 per cent in the UK, and the average mortgage was paid off within five years.

“Hong Kong did go through a period of negative valuations on property, but it didn't lead to large-scale defaults,” Mr Flockhart said. “At present, the property market looks pretty stable.”

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