20 years on: asset prices, credit growth reminiscent of Asian Financial Crisis – S&P

July 4, 2017

SINGAPORE - Countries that suffered in the Asian Financial Crisis 20 years ago have substantially reduced their external vulnerabilities and improved risk management over the past two decades, but high asset prices and rapid credit growth in recent years are reminiscent of conditions that prevailed when the Thai baht's peg broke on July 2, 1997, S&P Global Ratings says in report published today.

"Many of the direct causes of the Asian Financial Crisis were addressed head-on in the aftermath, especially in the external sector.
 “Most importantly, currencies were made much more flexible and the associated implicit Government guarantee on exchange rates is now much reduced," says Paul Gruenwald, S&P Global Asia-Pacific Chief Economist.
 In its report, S&P Global Ratings examines whether today's danger signs are
being ignored, as was the case in the run-up to the crisis two decades ago.
It looks at five differences between then and now, in 1) sovereign credit ratings; 2) external vulnerabilities; 3) asset prices; 4) growth drivers; and 5) the health of banks.
 "A couple of decades on, some Asian sovereigns still bear the scars of the Asian Financial Crisis," says S&P Global Ratings credit analyst, Kim Eng Tan.
 "Many of our regional sovereign ratings were lowered during 1997-1999 and some have yet to return to levels prior to the crisis."
 Among the differences between then and now is that many Asian countries look more to China than the U.S. as a destination for their final exports, says S&P.
 Moreover, in recent years, investment outflows from China have helped drive up regional asset prices, particularly in the property sector.
 "Real estate prices are invoking comparisons with the Asian asset bubbles that burst two decades ago," says S&P Global Ratings credit analyst, Christopher Yip.
 "Today, the more relevant issue for Asia-Pacific asset prices is not
rigid and artificial currency regimes, but cheap and plentiful money," he says.
 Banks in the region are still key financial intermediaries, which makes them vulnerable to any macroeconomic shocks, just as was the case two decades ago. www.standardandpoors.com (ATI).