Asian economies are not necessarily immune to the current turbulence in the US and European money markets, Monetary Authority Chief Executive Joseph Yam warns.

In his weekly Viewpoint column published today, Mr Yam said weakness in the US housing market led to a jump in the delinquency rate of sub-prime mortgages, leading to downgrades of ratings of sub-prime-mortgage-backed securities.

The situation also triggered investor concern about potential risk exposures and made them lose confidence in the rating system of structured products.

Other negative impacts include:

* difficulty in pricing the structured products and depleted liquidity;

* assets underlying the structured products returning to banks' balance sheets;

* a marked rise in perceived risks faced by banks and loss of confidence in the interbank market; and,

* tightness remaining even when central banks provide liquidity support.

"It is not clear when this turmoil in the money markets in the US and Europe will subside or whether monetary policy shifts may help," Mr Yam said.

"Interestingly, so far the contagious effects on emerging markets have been muted, presumably because financial innovation through securitisation has not taken hold as much as in the developed markets, given that the capital cushions of domestic banks in emerging markets in Asia, in excess of the regulatory requirements, are large.

"However, there is a risk that prolonged credit tightness may have adverse implications for the economy and asset prices in the developed markets, ultimately affecting the global economy."