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Asia down but not out

Sep 07 2013, 20:23 IST
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SummaryCurrencies of most Asian countries are plummeting against the dollar on the fear of withdrawal of US monetary stimulus after the US Federal Reserve chairman indicated in May end that the easy money policy in place since the 2008 financial crash will start tapering soon.

Currencies of most Asian countries are plummeting against the dollar on the fear of withdrawal of US monetary stimulus after the US Federal Reserve chairman indicated in May end that the easy money policy in place since the 2008 financial crash will start tapering soon. This has lead to a flight of capital towards the US and investors have started shunning Asian markets seen as riskier because of slowing economy and funding deficits.

A comparison of 1997 Asian crisis with the current scenario shows that while economic growth has been slowing in the region, current account balances are in better shape now than in 1990s except for India and Indonesia, and higher level of forex reserves and more flexible exchange rates mean that most countries in the region are better placed in this cycle.

A detailed analysis by Bank of America Merrill Lynch shows six out of the nine markets in Asia are demonstrating heightened financial vulnerability close to what was seen in mid 1997. Countries like India and Malaysia score poorly on the measures of financial vulnerability. And the economic condition in countries like China and Indonesia are also concerning. Korea looks less vulnerable while Thailand is in the middle of financial vulnerability. However, the report underlines that the breadth of countries that are seeing the greatest impact is almost as high as mid-1997, but the intensity of the event is not quite as high as prior to the start of the Asian crisis.

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