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Regardless of Debt Deal, Asia Has 'Work Cut Out' For It

With US politicians sealing a deal to cut spending over the next 10 years, Asian stock markets were rallying on Monday. But most analysts CNBC spoke to say the White House had only just begun to grapple with the debt problem and the equity rally was likely to be short-lived.

Chinese Yuan and US Dollar
STR | AFP | Getty Images
Chinese Yuan and US Dollar

"They only delayed the problem by cutting $1 trillion dollars. Politicians are still not coming to terms with the problem," Nicholas Kwan, Regional Head of Research for Asia at Standard Chartered bank told CNBC.

Asian policymakers, meanwhile, have their work cut out for them in terms of rebalancing growth and dealing with rapidly strengthening currencies, analysts say.

"The basic conclusion is that we are not going to be saved by the U.S., not going to be saved by Europe and neither from Japan," Standard Chartered's Kwan said.

Kwan believes Asian economies need to rely more on domestic consumption and intra-regional trade to boost growth, something that will prove difficult to achieve after 3 to 4 decades of reliance on exports.

Ajay Kapur, Head of Equity Strategy for Asia at Deutsche Bank agrees that the debt worries in the U.S. and Europe are no reason for Asia to gloat.

"I'm not a big fan of hubris and pomposity and arrogance because I think every region gets its chance to blow up, let's not forget Asia blew up in 1997-98, Brazil blew up in '99," he said.

Kapur notes that despite strong economic growth, emerging market stocks had lagged U.S. stocks so far this year.

"We need to distinguish between what's happening in the macro economy and what's happening in the stock market," he said. "I think this year the biggest surprise is going to be [that] the U.S. equity market beats most emerging markets."

Kapur said investors will continue to bet on a U.S. economic recovery and that a weak dollar would make U.S. manufacturing more competitive.