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Correction for China Markets 'Long Overdue': Roach

There is no greater source of untapped internal demand than China, says Stephen Roach, Asia chairman at Morgan Stanley.

Speaking on "Squawk Box Asia" Thursday, Roach said that the financial crisis showed how the Asian region would significantly benefit from China.

“The crisis is a wake-up call that the external demand from the West won’t be there for a long time. So the region has to look internally to new sources of demand”

Asia’s biggest source of external demand, the U.S., is “on the rocks,” says Roach. This fuels the need for China to step in and benefit Asian countries, like South Korea for example.

“Korea has shifted its major external market from America to China, as has Japan…so there’s a lot riding on the ability of the Chinese to stimulate this new source of internal demand that could benefit not just the Chinese, but the Korea(ns) and the Singapore(ans) too.”

But Roach cautioned that China would only be more attractive after a long overdue correction.

“I think right now the markets have run too fast too far, liquidity-driven and they have moved out of alignment with what I think is a very sluggish underlying recovery in the global economy”

Overall though, Roach was bullish on China, seeing an upside in its services sector over the next 5 to 7 years.

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