The issue has to do with the solvency and liquidity of a country. Greece is extremely limited in its ability to bail out banks at present, not because it is short of euros per se but because it is short of dollars and other "hard" currencies, runs a huge international payments deficit, and has massive foreign debt, because the markets will not lend the Government money in any currency. This has everything to do with the fact that its public sector deficit is 13% of GDP, its government debt to GDP ratio is 120% and counting, its savings rate is very low, its GDP is falling and the Government has no credibility.

On each of these counts, China stands in stark contrast, with very low debt and budget deficits, very high growth rate and savings rate, high credibility, liquidity and a balance sheet that is the envy of the world, including US$2.5 trillion of foreign exchange reserves (Chart 5). As a result, China is in a position to borrow or print RMB on a vast scale, using its FX reserves as collateral if need be, guarantee bank capital or rely on any of a number of other options. For example, in a crisis it could take all the non-performing loans off the banks, put them in a mutual fund and guarantee the liabilities. The point is that China is not like Greece. China has immense capacity to absorb loan losses. Unfortunately, if they go down the road of making too many bad loans and allowing bubbles to develop out of fear of letting the market work, they may eventually end up like Japan, with too much debt, excess capacity and stagnation. But China is still in a vibrant growth stage and any comparison with Japan is years away from becoming relevant.

Eoin Treacy's view There is a stark contrast between the world's leading growth economies and those of Japan, Europe and the USA. Investment capital will always follow the path of least resistance and Asian markets have benefited enormously from foreign investment flows. The export driven, trade surplus economic model coupled with the fiscal tightening imposed following the Asian Financial crisis have left most Asian countries in a relatively favourable economic position, with significant potential to continue to outperform.

The Shanghai A-Shares Index remains oversold relative to the 200-day moving average and has paused in the region of 2600 for the last month. A sustained move above 2800 would confirm support in the current area, while a sustained move back above 3300 is needed to break the progression lower rally highs and signal a return to demand dominance. The Hang Seng formed a key day reversal last week and has so far held the short-term advance. A sustained move below 19,000 would now be required to question scope for some further higher to lateral ranging.

Elsewhere in Asia, the Philippines Index remains in a consistent uptrend. It held most of the 10-week advance from the February and found support in the region of the upper side of the previous highs and the 200-day MA. It has now pushed back to test the recovery high near 3350 and a downward dynamic would be required to question scope for some further upside. The US Dollar has sustained a move back above the 200-day MA against the Peso and a sustained move below PHP46 would be required to question scope for some further upside.

The Malaysian KLCI has lost momentum and posted its largest pullback since 2008. It found at least short-term support in the region of the 200-day MA last week, posting an upside key day reversal. A sustained move below 1240 would now be required to hinder potential for some further higher to lateral ranging. The US Dollar found support on Monday near MYR3.25 and a sustained move below that level would be required to question scope for some further higher to lateral ranging.

The Indonesian JCI peaked in early May with a large weekly downside key reversal and pulled back to test the psychological 2500 level and the 200-day MA. It rallied well last week and a sustained move below 2500 would now be required to question scope for further higher to lateral ranging. The US Dollar has lost downward momentum against the Rupiah within the pre-crisis range. It would need to sustain a move back above IDR9500 to break the medium-term progression of lower rally highs and further question the consistency of the 18-month downtrend.

The Indian Sensex has been ranging above 15,000 since October and is currently testing the lower side of this congestion area and the 200-day MA. It rallied well last week but needs to hold above 15,800 to sustain the short-term bullish outlook The US Dollar rallied impressively against the Indian Rupee, three weeks ago, to break the medium-term progression of lower rally highs. A sustained move back below INR46 would now be required to question scope for some further higher to lateral ranging.

The Singaporean STI encountered resistance near 3000 and has returned to test the February low near 2650. It needs to sustain a move back above the MA near 2750 to confirm support in this area. The US Dollar rallied somewhat against the Singapore Dollar over the last couple of weeks but would need to sustain a move above SGD$1.425 to question scope for some further lower to lateral ranging.

The Korean Kospi has been ranging since September. It failed to sustain the break to new recovery highs in early May and pulled back to test the lower side of the congestion area. It rallied well last week and a sustained move below 1500 would be required to question scope for some further higher to lateral ranging. The US Dollar has rallied impressively against Won over the last month and a sustained move below KRW 1150 would be required to question scope for some further upside.

The Taiwanese TWSE has sustained two dramatic pullbacks this year and found at least short-term support near 7000 last week. However, it needs to sustain a move back above 7500 to confirm demand is returning in this area beyond a brief bounce. The US Dollar rallied emphatically three weeks ago against the Taiwan Dollar, breaking the yearlong progression of lower rally highs and a sustained move below TWD32 would be required to question scope for further upside.

The Thai SET Index continues to range above 700 and the 200-day MA. A sustained move back below 675 would be required to question scope for further higher to lateral ranging. The US Dollar has rallied to test the 200-day MA but would need to sustain a move above THB33.6 to break the progression of lower rally highs and question the consistency of the medium-term downtrend.

There was an impressive correlation between the performance of Asian stock markets and the relative strength of their currencies against the US Dollar from late 2008 to April. This is now breaking down suggesting that foreign investors have redeployed some of their capital elsewhere. Domestic buyers are probably active in supporting their respective markets but further deterioration of Asian currencies relative to the US Dollar would act as a headwind to these markets. This puts additional importance on last week's lows holding.