Let’s see, surging capital inflows into relatively tiny Southeast Asian markets, sharply rising asset prices, and Malaysia planning to build one of the tallest towers in the world.
1995? Nah, 2010.
Just 13 years after the 1997 Asian financial crisis, Asia ex-Japan is booming with many parallels to the 1990s.
Before it was Thailand as one of the best performing markets in the world, this time we have tiny Sri Lanka whose Colombo Stock Exchange was #1 in the world and up 110.9%, at least as of October 3rd.
And yes, Malaysia couldn’t be playing to queue more perfectly, given that they’re planning a new tallest mega-tower called Warisan Merdeka, even though they already have the record-beating Petronas Twin Towers from the 1990’s, which we should remind you still contribute to office space oversupply in downtown Kuala Lumpur.
So is there a threat of a 1997 crisis repeat? Yes, warns the World Bank in a new report.
“Larger inflows combined with ample domestic liquidity and rising confidence have boosted stock markets, real estate prices and other asset valuations in some countries, precipitating fears of a new bubble,” the report said.
“The authorities in East Asia need to take adequate precautions to ensure that they do not repeat the same mistake twice in slightly over a decade.
There is some evidence that capital flows to East Asia are becoming more short-term, Nehru said, but he was confident that Asian governments would not allow inflows to become so short-term that they could reverse quickly, as they did in the 1997 Asian financial crisis.
Probably the largest difference between now and the 1990s is that Asian nations and corporates are not nearly as leveraged as they were back then.
Still, never underestimate the effect of a sudden and sharp outflow of capital, and this is surely not lost on Asian leaders whose memories are still scarred from 1997. Which means expect tougher and tougher capital controls as fund flows continue to pour in. Nobody wants to see a repeat of ’97, even if the situation seems far less risky this time around.
You can find the World Bank’s complete report mentioned above here.