Thursday, 17 September 2015

Is emerging Asia facing a repeat of 1997?

The recent weakness in the markets of emerging Asian countries has led many analysts to wonder whether we are seeing a repeat of the 1997 financial crisis. Some think that things could even be worse now.

From Bloomberg:

If the 1997 Asian financial crisis was a heart attack for emerging markets, the current situation is akin to chronic cardiovascular disease, according to Macquarie analysts led by Viktor Shvets and Chetan Seth...

[T]he Macquarie analysts reckon the current situation might actually be worse...

The crux of their argument is that despite the difficulties of 1997, its effects were mitigated by rising global leverage, liquidity, and trade shortly thereafter. This time around, those factors might not be there.

However, other analysts are more sanguine.

“Things are fundamentally different now compared with 1997,” said Tomo Kinoshita, chief economist at Nomura Securities. “Authorities have introduced quite rigid prudential measures to avoid a currency crisis. The depreciation in the currency is a positive factor for the exports and general competitiveness of those Asian nations.”

“The region still has many buffers, so we are not in a repeat of the Asian crisis context,” said Anoop Singh, former director of the Asia and Pacific Department at the International Monetary Fund.

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