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1997 - 2017 ... Asian Financial Crisis Revisited


 The Asian Financial Crisis of 1997 lasted more than a few years. Now its 20 years on and most media outlets have covered the topic to death. Are we going to repeat this mistake?





Pics: Indonesia's Pevita Pearce, enough said.

Asia’s currency reserves at well over $6 trillion make up more than half of the world’s holdings, led by China’s $3 trillion hoard. In 1996, Asia’s reserves were less than $1 trillion, leaving central banks short handed when their fixed and managed currencies came under speculative attack.


COUNTRY  /  Reserves 1996 / Reserves May 2017 / Percentage Gain

South Korea      $33b      $378b     1145%
Philippines        $11.8b   $82b       695%
Thailand            $38.7b  $184b      475%
Malaysia           $27b      $98b       362%
Indonesia          $18.3b   $125b     683%


Looking at the new level of reserves alone, it will take a lot more firepower to drag down this group collectively. Individually, most are still vulnerable, though South Korea might have elevated itself to a new level of safety.

Does this means Malaysian ringgit is vulnerable. Yes and no, $98b is good but we should aim for more. Judging from the population and trade, we need to get to $150b by 2020 at least. 

To be fair, Malaysia has had to combat a currency attack for the last 18 months. Without that, the figure should have been closer to $120b.

However, there is a silver lining, if you can call it that. Thanks to the "perception" issue and the 1MDB issue, the ringgit has been whacked lower already over the last 18 months. Technically we HAVE HAD our mini financial crisis as the ringgit is already 30-40% weaker against USD and around 10-20% weaker against the other countries above. A weaker ringgit may have a lot of negatives initially, but it also makes our largely export industries more competitive. This is an important "buffer" of sorts. 

TACIT AGREEMENTS


Realising that most of us in Asia is in the same boat, most central banks have signed tacit agreements especially with China to help combat any outrageous volatility or attacks on respective currencies. 

There is also the long term investment aspect as large MNCs contemplate where to invest in new plants and factories and offices.


ASEAN. Private consumption continues to drive steady growth among the ASEAN countries. Capital outflow pressures are muted and, more broadly, external vulnerabilities look to be in check for now. Lower commodity prices have not had major impact on Malaysia and Indonesia, both net commodity exporters. The group remains sensitive to developments in China. Other domestic uncertainties in these countries have not translated to lower economic activity and this is likely to be the case over the medium term. We forecast growth of 5.0% and 5.1% for ASEAN in 2017 and 2018 respectively - S&P


FOREIGN DEBT / GNI

This is where Malaysia has a problem. Our percentage has actually increased over the past 20 years from 41.3% to 66.3%. Meanwhile all the rest have seen that figure dropping to 22%-37%.

However Malaysia is in a unique position as our population is only around 30m. Whereas the rest have a credible and sustainable domestic economy buoyed by its sizeable population. Malaysia's position has always been structurally different because of population size (or lack of). We have to have our economy being more open compared to the rest.


WHAT ABOUT THE LOCAL STOCK MARKET?

I have written my views on that: http://malaysiafinance.blogspot.my/2017/06/how-long-will-bull-lasts-for-malaysia.html

If I may add some timeline catalysts: the October visit by Xi Jin Peng; the deadline by middle of 2018 for over RM2bn worth of insurers' shares to be transferred to local owners, either via direct placements/sale or IPO... we can look forward to at least 2 if not 3 massive IPOs; a probable CNY rally followed by elections.

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