Crises are never easy to containby Andrew Wong
I had previously warned that Argentina's economic woes could eventually extend across the seas and impact the Asia Pacific region.
You might think countries in this region are better off than Argentina as they are relatively stable with abundant foreign exchange reserves. But take a look at China, for example. Though it has ample foreign exchange reserves, if it were to become embroiled in a trade war against the United States, wouldn't its economy and markets be at risk?
Let's go back in time to the Asian financial crisis of 1997, when the Thai baht collapsed. At the time, Hong Kong's finance officials had said there was no need to worry as Hong Kong had solid foreign exchange reserves and a well regulated financial system,.
This was a time when the market was looking forward to the return of Hong Kong to China. The Hang Seng index on June 20 of that year had risen above 15,000 points and by August 7, it had hit a record high of 16,820 points.
On July 2, Thailand abandoned its dollar peg, leading to the baht plummeting by as much as 17 per cent against the dollar and triggering financial turmoil throughout southeast Asia, with Philippine peso, the Indonesian rupiah and Malaysia ringgit targeted as well.
Then came the big sell-off as the Hang Seng index crashed to 8,776 points on October 28, a more than 47 per cent plunge from its August peak.
This was not surprising, as market turmoil can quickly spread across emerging markets leaving no country and region unaffected.
Why were the region's markets so vulnerable and the financial crisis so contagious? Firstly, the local bond market was not developed enough at the time. Several companies were reliant on dollar bonds to raise funds, plus there was a lack of adequate foreign exchange reserves.
And although Hong Kong had ample reserves, in the face of a rising dollar and aggressive outflows, a heavy price had to be paid to contain the crisis.
Two decades on, will the regional markets be able to withstand the turbulence generated by the crisis in Argentina? Also, US president Donald Trump looks set to launch a global trade war but even if he doesn't, the movement of the dollar could trigger fundamental changes and should be closely watched.
Source: The Standard
http://www.thestandard.com.hk/section-n ... 0625&sid=2
It's all about "how much you made when you were right" & "how little you lost when you were wrong"