The View | Why comparisons of Asian market turmoil today with the 1997 financial crisis are wide of the mark
- The 25th anniversary of the devaluation of the Thai baht that sparked turmoil across Southeast Asia has thrown today’s Asian market turbulence into sharp relief
- However, many Asian markets are now in a stronger position on the currency and current account fronts, and are facing conditions vastly different from those in 1997
A quarter of a century on, Asia’s markets are again under intense pressure. In the second quarter of this year, the Bloomberg JPMorgan Asia Dollar Index – which tracks the performance of the region’s 10 most actively traded currencies against the US dollar, with the exception of the Japanese yen – fell 4.4 per cent, one of its steepest quarterly declines since the 1997 crisis.
Equity and bond markets have also come under severe strain. Foreign investors sold a net US$40 billion of stocks in seven major markets across the region last quarter, the largest quarterly outflows during a period of intense selling pressure since the 2008 financial crash, data from Bloomberg shows.
In May, global funds sold a further US$16.6 billion of Asian local currency debt, one of only four months in the past decade in which monthly outflows surpassed the US$15 billion mark, three of which occurred this year, data from JPMorgan shows.
More worryingly, the whiff of a policy mistake is in the air. Unlike their peers in Latin America and Eastern Europe, central banks in Asia have raised interest rates at a much slower pace. Yet, inflationary pressures, which have been less acute than in advanced economies, have continued to build, driving real bond yields in many Asian markets deeper into negative territory, contributing to the surge in capital outflows.