Constant turbulence is observed in Asian stock markets, which is predicted to continue. Frederic Newman, Chief Economist at HSBC, issued a warning about a potential major financial crisis in Asia that would resemble what happened in 1997. He identified similarities between the current economic situation and the regional economic downturn that occurred nearly three decades ago.
In his analytical report, referencing the sharp rise in US Treasury bond yields and the extremely weak state of the Japanese yen, Newman noted that the financial landscape governing Asian markets today shares many commonalities with the devastating 1997 Asian financial crisis.
In a document dated August 31, HSBC Chief Economist Frederic Newman issued this serious warning regarding Asian markets. According to CNBC, he stated that as global markets assess signs of alarm, the main threat to Asia has shifted from weak banking systems to complete dependence on the American direction in artificial intelligence (AI).
Newman emphasizes that historical parallels cannot be ignored. Before the 1997 economic crisis, the yield on 10-year US Treasury bonds rose from approximately 5% in October 1993 to 8% in November 1994, remaining around 7% until April 1997. Today, there is an increase of approximately 80 basis points since February, reaching about 4.79%, which is significantly higher than the historical low of 0.5% recorded in August 2020.
The currency market is also signaling danger. Between April 1995 and April 1997, the Japanese yen fell against the US dollar by approximately 55%, dropping from 80 to 130. In the current situation, the Japanese yen has fallen from a level of about 103 per dollar in January 2021 to its lowest level of 163 in July, representing a drop of 57%.
Presenting this data, Frederic Newman argues that the underlying cause of the crisis was similar in both instances. While the internet was booming in the mid-1990s, today the market dynamic is focused on the growing influence of AI. Despite the opposition of these two phenomena, Newman insists that the structural differences between 1997 and the present are smaller than the similarities.
In the 1990s, Asian countries were capital importers and relied on foreign savings for domestic investment, leading to a significant current account deficit and weak banking systems. When borrowing costs rose sharply, foreign capital suddenly left the countries, causing mass bank failures, starting with Thailand and South Korea. Currently, these same economies are capital exporters and possess huge foreign exchange reserves. However, Asia faces a new vulnerability.
Major regional manufacturing hubs, including South Korea, Japan, Taiwan, and Singapore, are heavily dependent on electronics and semiconductor exports, as well as massive spending by American tech giants on AI infrastructure. According to Newman, instead of the financial instability characteristic of the 1990s, Asia now faces uncertainty related to demand.
According to the report, the economist stated that if the rise in US Treasury bond yields and the increase in borrowing costs force American hyperscale companies to cut data center spending, or if yen volatility destabilizes markets, this could have a direct and immediate impact on Asian export centers. Newman believes this will manifest not as panic in banking trading floors, but as a quiet but rapid decline in orders for leading chip manufacturers.