Investors Were Scared But There Was Never Going To Be A Repeat Of The Asian Crisis

Indian rupeeGetty / File

Asian markets and currencies came under pressure mid-way through this year, especially the Indian Rupee and the Indonesian Rupiah. Investors were scared that growth was stalling, and they pulled their money out.

This raised fears of another Asian crisis — especially in the markets most affected.

Though there was little need to worry.

Today the world is very different than it was in the late 1990’s when the crisis struck. This is shown in this great chart from Westpac’s China watcher “Phat Dragon”.

Back in the 90’s big investment flows into the emerging Asian economies combined with structural current account deficits (that’s where a country imports more stuff than it exports) to make for a fragile situation if the foreign capital got spooked for any reason.

Of course as Mrs Murphy’s Law of Economics states – if bad stuff is going to happen then it will – foreign investors lost confidence in their investments in Asia and started to pull their money out. Central Bankers naturally reacted by trying to protect their fixed currency regimes by buying, Korean Won, Thai Baht, Malaysian Ringgit and Phillipine Peso’s which almost sent the countries broke.

In Hong Kong the selling was acute and the stock market tumbled until the Hong Kong Monetary Authority (effectively Hong Kong’s version of the RBA) went into the market and bought all shares from all comers until the panic ended.

But in the rest of Asia the selling was relentless as investors charged for the door. In the end the sellers won and the currencies were allowed to float and the pressure valve was released.

What a difference 15 or 16 years makes.

In many ways it was the devaluation of the exchange rates, as a result of the Asian Crisis, which helped make these countries more competitive — as you can see in the big improvement in the current account deficit for Korea, Thailand, Malaysia, Singapore and Hong Kong in the chart above.

But it is also obvious why the Indian Rupee and Indonesian Rupiah came under pressure this year as emerging markets went out of favour mid-way through 2013.

Asia is a lot more economically stable in 2013 than it was in the 1990’s — it’s one of the reasons Australia is in its 23rd year without a recession.

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