Has Asia broken free from the Wall Street leash?

"Contagion isn't dead yet," says Lex in the FT. There had been signs that emerging Asia's tendency to mirror movements in developed markets had waned. But last week the global jitters left Asia reeling, with South Korea losing 11% in five days and the Philippines tumbling by 6% in a day. Even mainland China slipped. Despite subsequent strong rebounds by regional markets, the MSCI Asia ex-Japan index has now dropped by about 13% from its July record peak.

Fundamentals have been "thrown out of the window", as one analyst put it. We have often highlighted the Asia story in MoneyWeek: regional growth is humming along at around 8%; billions of consumers are beginning to flex their credit cards; corporate profitability is at near-record levels. Asia is in the midst of a "long-term bull market", says Christopher Wood of CLSA, but it has suffered "collateral damage" from US jitters. Subprime exposure appears relatively limited, but the credit crunch may hamper America's growth and that of other developed countries, thus crimping Asian exports.

Merrill Lynch, noting that Asia actually accelerated between 2004 and 2006 as America slowed, reckons the region can withstand a US consumer recession. Japan, Europe and non-Asian developing countries have been offsetting slower US demand, lowering Asia's dependence on the US: just 16% of the region's exports now go to America, down from 25% in 2000. What's more, there has been a "structural upturn" in domestic demand, driven by investment.

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Yet Michael Kurtz of Bear Stearns says that while direct exports to the US may have slid, a regional GDP breakdown shows that thanks to globalisation exports have become more important to overall economic activity everywhere except Indonesia and the Philippines, while consumption's share has declined. Morgan Stanley calculates that exports comprise 42% of Asian GDP, and nearly 66% of exports still end up in the US, EU or Japan, says Lex. And consumption is still not significant in absolute terms, says Kurtz. China's consumption expenditure last year was $1trn, compared to America's $9.2trn. India's was a mere $514bn. It's too early to talk of "a fully autonomous and independent Asia", says UBS.

However, while the economic decoupling theory may now be tested in earnest as the US outlook clouds over and Europe appears to be slowing down, what of Asian stockmarkets? While correlations between Asia and the S&P 500 weakened in the first half, global stocks follow Wall Street more closely during a downturn. External issues have "superseded the region's fundamentals", and as long as this is the case, "it will be difficult for Asian markets to rise", says Merrill Lynch. On the plus side, the Wall Street "leash effect" should fade as investors increasingly factor in Asia's "increasingly important dynamism", says Martin Spring in his On Target newsletter. Still, it seems the next leg of Asia' bull run may have to wait until credit-related jitters subside.