NIA Asian Financial Crisis Report

18-Feb-2016

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From : http://inflation.us/nia-asian-financial-crisis-report/

In recent weeks, many NIA members have been asking us about if we are at the beginning of another Asian financial crisis like the one that occurred in 1997/1998. The 1997/1998 financial crisis in South Korea, Malaysia, Singapore, and Thailand was primarily a currency crisis. NIA has created a US Dollar Index against the currencies of South Korea, Malaysia, Singapore, and Thailand on an equal weight basis – starting at 100 at the beginning of 1994. Between June 1997 and January 1998, the index exploded from 95.70 to a record high of 179.28. The currencies of South Korea, Malaysia, Singapore, and Thailand declined by 47% against the US Dollar in just 7 months.

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The currency crisis was caused by the private sectors of South Korea, Malaysia, Singapore, and Thailand taking on too much debt. The average bank credit/GDP ratio of South Korea, Malaysia, Singapore, and Thailand was only 36.8% back in 1970, but had reached 95% in early 1991 – before spiraling out of control to 143.8% by the end of 1997.

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Prior to the currency crisis, the economies of South Korea, Malaysia, Singapore, and Thailand led the world in growth from 1991 through 1996, doubling their combined GDP in just six years – achieving 12.35% annual GDP growth vs. 5.53% for the world economy. However, this GDP growth was artificial and fueled entirely by banks providing easy loans to the private sector. This resulted in malinvestment and overcapacity – and in 1997 their GDP priced in USD crashed by 38.21% in one year.

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It took six years for the total GDP of South Korea, Malaysia, Singapore, and Thailand to rise from being 1.90% of the global economy up to being 4.09% of the global economy, but took only six months for it to crash back down to 2.56%.

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Between February 1997 and August 1998, the stock markets of South Korea, Malaysia, Singapore, and Thailand crashed by 76% in USD market cap at a time when the global market cap of stocks rose by 4%. This is the only time in history that their combined market cap moved in the opposite direction of the global market cap.

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Their share of the global market cap crashed from 3.64% in February 1997 down to a record low of 0.83% in August 1998. It took a full decade for the stock markets of South Korea, Malaysia, Singapore, and Thailand to rise back to a 3.64% share of the global market cap. At the end of 2012, their share of the global market cap reached a new record high of 5.12%, and it remains at 3.99% today.

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The market cap/GDP ratio of South Korea, Malaysia, Singapore, and Thailand crashed from 79.17% in February 1997, down to a record low in August 1998 of 26.24%. At no other time in history has a region of the world experienced such a dramatic 18 month decline in its market cap/GDP ratio.

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At the August 1998 low, the market cap/GDP ratio of South Korea, Malaysia, Singapore, and Thailand was 49 basis points below the market cap/GDP ratio for the rest of the world vs. a long-term average of being 8.55 basis points above the rest of the world. In 2011, when the market cap/GDP ratio of South Korea, Malaysia, Singapore, and Thailand rose to a new all-time high of 133.20%, it was a record 53.9 basis points above the rest of the world. Today, it remains 29.3 basis points above the rest of the world.

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