The 1997 Asian financial crisis, which resulted in a widespread\nregional economic recession, has become a significant concern in the\ncurrent climate of market instability, characterised by currency\ncollapses, capital flight, and banking failures.<\/p>\n
Frederick Neumann, chief economist at HSBC, stated that similarities\nbetween the present situation and the period immediately preceding the\n1997 crisis are already becoming apparent. He detailed these\nobservations in a note dated 31 August.<\/p>\n
Three Similarities<\/p>\n
Quoting CNBC International, Neumann highlighted several key aspects.\nFirst, there is the high yield of US Treasury bonds. He noted this is\nthe most prominent similarity to the moments before the 1t997 crisis.\nDuring that period, the 10-year US benchmark bond yield rose from 5% in\nOctober 1993 to approximately 8% in November 1994. By April 1997, yields\nwere around 7%, roughly 200 basis points higher than four years prior.\nNotably, as of Tuesday morning, the 10-year Treasury yield has risen\nfrom a low of 0.5% in August 2020 to approximately 4.79%.<\/p>\n
\u201cIndeed, that process took six years,\u201d he remarked. \u201cHowever, this\nyear alone, yields have surged by about 80 basis points from the 3.9%\nrecorded in February,\u201d he emphasised.<\/p>\n
Furthermore, the US Treasury has announced plans to target the\n10-to-30-year bond market segment for buyback operations, intending to\nat least double the maximum size of these operations from US$2 billion\nto at least US$4 billion.<\/p>\n
Secondly, another similarity is evident in the recent movement of the\nJapanese yen. In April 1995, the yen traded at a cyclical low of 80\nagainst the US dollar, whereas by April 1997, it had weakened to 130, a\ndepreciation of about 55%. Currently, the yen has weakened by 57% from\nits low of approximately 103 in January 2021 to a peak of 163 in July,\nbefore rare joint interventions from Washington and Tokyo strengthened\nthe currency to its current level of around 160. Markets are now\nconsidering the possibility of further interventions.<\/p>\n
Thirdly, leading up to the 1997 crisis, the market was gripped by\noptimism regarding technology following the emergence of the internet.\nIn a contemporary context, Neumann noted that the surge in Artificial\nIntelligence (AI) is triggering similar levels of optimism.<\/p>\n
Are There Differences?<\/p>\n
Despite these similarities, Neumann argued that the differences\nbetween 1997 and 2026 are greater than the similarities. Most\nsignificantly, he noted that during the 1990s, most Asian economies were\ncapital importers, meaning they received more foreign investment than\nthey invested abroad, and possessed insufficient savings to meet their\nexpenditure commitments. Rising US dollar funding costs and an unstable\nyen\u2014which caused investor anxiety\u2014were the primary catalysts for\npressure in the region.<\/p>\n
In contrast, Asian economies are currently capital exporters.\nConsequently, high US funding costs and a weakening yen are not the\nprimary drivers of pressure. However, this does not mean the region is\nimmune to negative impacts. The most relevant issue for Asia, Neumann\nasserted, is its dependence on the surge in AI hardware in the US, which\ndrives many economies in the region.<\/p>\n
\u201cExports of electronics related to the AI boom have supported growth\nin South Korea, Japan, Taiwan, and Singapore,\u201d he noted. \u201cRather than\nfinancial vulnerability as seen in the 1990s, Asia now faces demand-side\nvulnerability.\u201d<\/p>\n
He warned, \u201cIf rising bond yields and US funding costs hinder the AI\nhardware boom, or if the yen destabilises global funding markets, demand\nfor the region\u2019s products could plummet, and economic growth could slow\ndrastically.\u201d<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/will-a-1997-style-crisis-recur-global-bank-issues-warning-highlighting-three-similarities-1788314357", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }