SINGAPORE (Sept 10): Ten years ago this month, reporters and editors at The Edge Singapore were sending a lot of text messages to one another in the dead of night. As the US was trying to contain its subprime mortgage crisis, just about all the news that mattered to the Singapore market was breaking on the other side of the globe.
Looking back, it was not Lehman Brothers filing for bankruptcy on Sept 15, 2008 that incited the most chatter in our little group, though it certainly was a seminal moment in the story of the crisis. Instead, it was the almost-now-forgotten incident on Sept 29, 2008 of US lawmakers refusing to support a US$700 billion rescue package for financial institutions that had us fearing the end was nigh. One text message summed it up thus: “Armageddon cometh. Package shot down by US Republicans.”
This week, newspapers around the world will be observing the 10th anniversary of the financial crisis that many feared would tip the world into its deepest recession since the 1930s. It prompted major central banks and governments to mount a massive stimulus exercise that went on for years. And, despite the initial scepticism, it is fair to say that the programme worked. Global markets were buoyed by all the liquidity, and economic activity gradually recovered.
Indeed, the last couple of years saw a rare period of synchronised growth in major economies around the world. And, even as the US now continues normalising its monetary policy, its economy is not showing signs of slowing down.
However, the picture is not quite so positive in Asia. Tightening US dollar liquidity is weighing on currencies such as the Indonesian rupiah and Malaysian ringgit. And, things could be about to get worse. Emerging-market countries are often forced to tighten fiscal and monetary policy to keep their currencies stable, even when their economic growth prospects are already waning. Bank Indonesia governor Perry Warjiyo reportedly said this past week that he would take “pre-emptive front-loaded” measures to ensure stability, signalling a possible fifth interest rate hike this year.
In fact, the Indonesian rupiah is approaching exchange rates versus the US dollar not seen since the Asian financial crisis of the late 1990s. And, the Malaysian ringgit is now well below the 3.80 level at which it was fixed when Bank Negara Malaysia introduced capital controls, almost exactly 20 years ago this past week.
For inspiration on how to position oneself in the markets now, it probably makes more sense for investors here to cast their minds back to this earlier crisis, instead of the US subprime crisis. While the US subprime bust caused a global credit crunch that was felt here, the whole affair really felt like someone else’s crisis, not least because a lot of it happened during the darkest hours of the night here. As the US draws back its massive monetary stimulus, we are getting a crisis in our own time zone, similar to what we saw back in the late 1990s. But don’t expect it to play out exactly the same way.
In the first place, Southeast Asia is in better shape than it was 20 years ago. Its currencies are also more flexible, and its capital markets more developed. So, a disorderly rout that descends into economic and sociopolitical turmoil seems unlikely. On the other hand, the region’s depreciating currencies might not boost export competitiveness in the same way as the late 1990s, given the growing anti-trade sentiment in the US. This uncertainty, on top of tightening US dollar liquidity, could be what causes asset markets in Asia to slump into bargain territory.
How will we know when we get there? Perhaps by the surge in panicked text messages in the dead of night.
