Asian crisis gone but not forgotten

This article is part of
Investing in Asia – February 2016

Asian crisis gone but not forgotten

Look at any prolonged period of market volatility in Asia, and one of the many questions that spring to mind is whether it is a repeat of the 1997-98 Asian financial crisis.

That crisis began when the Thai currency collapsed, spreading contagion and hitting countries including Indonesia, South Korea, Malaysia and the Philippines. Almost 20 years on, as we work through a Chinese slowdown and its implications for Asian economies, has the region learned lessons from the past?

Andrew Swan, managing director and head of Asian fundamental equities at BlackRock, suggests the region is in a far better place than 20 years ago, with “more flexible foreign exchange regimes, quicker adjustments to current accounts, balanced corporate attitudes to foreign debt and, importantly, less hubris”.

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He adds: “There is a transition under way, with Asia moving from an old model built on exports to developed markets, to a more self-sustaining and domestic model. There has been genuine progress in countries such as the Philippines.”

Paul Danes, manager of the Martin Currie Asia Unconstrained Trust, agrees the removal of fixed exchange rates “means adjustments are less dramatic; current accounts and reserves are also in better shape”.

But that doesn’t mean there are no risks: “Exchange rate risk remains the biggest wild card in Asia. As rates diverge, there is a small but serious risk that portfolio flows, especially from the fixed income market, could cause significant dislocations in exchange rates.

“Malaysia and Indonesia are both in a relatively weak position. Of all the Asean countries, Indonesia has probably done the least over the past 20 years to reform and enhance its long-term position,” he explains. “The star is the Philippines. This is partly because it has favourable demographic trends and partly because the exchange-rate risk is mitigated by remittances from overseas workers. The problem is that the Philippines is the most expensive market in Asean.”


Newton’s Rob Marshall-Lee on key Asian market opportunities:


We expect a lower growth rate in China, yet there are many attractive investment cases, such as companies within the e-commerce and healthcare sectors. We are conscious of the debt excesses that have built up and, while we do not expect a crisis, we do see companies exposed to these areas as highly vulnerable and, hence, value traps.


India is our preferred emerging market for the next five years. It is one of the few markets in the world where we see strong multi-year growth potential, underpinned by structural growth factors. While an appealing improvement story is under way, the market has become frustrated at the pace of change during 2015.


The Philippines has elections in the first half of this year, and the right candidate will be important in ensuring continuity of investment and reform-driven growth. The positive population demographics and early credit-cycle factors remain attractive and have all been conducive to the strong GDP performance.

But while governments made changes in the wake of the last crisis, Rob Marshall-Lee, head of Asia and emerging markets at Newton Investment Management, warns the “flood of international money into the region in recent years has made it vulnerable to the vagaries of foreigners who are quick to move their money in times of turmoil”.