This time is different, but this too shall pass

“This time is different” is a common phrase I have heard over the course of my career each time  a financial crisis happens; I have gone through 4 major crises including the current one. But are they really different and what lessons can we learn from them? Let’s make a trip back to history.

The 1997 Asian Financial Crisis (AFC)

While the AFC affected East Asia and Southeast Asia (SEA) in 1997, Indonesia, Malaysia, Philippines, South Korea and Thailand were the most affected. Between 1990 and 1995, these countries’ GDP grew at rates as high as 9 per cent p.a. and were expected to continue. With the relatively lower interest rate environment in the US then, the financial world wanted a piece of the economic miracle in this region and money flooded into them. I still remember vividly that many fund houses launched their versions of the SEA funds and investors were hungry to invest in them. These factors caused the stock markets and real estate prices in the countries (including Singapore) to surge. But when the US increased interest rates in 1994, the USD strengthened and Asian countries which had their currencies pegged to the USD became less attractive relative to other major currencies. To make matters worse, China devalued the yuan by 30 per cent. These factors caused a slowdown in exports in SEA and Korea.