Next month marks the beginning of the 1997 Asian financial crisis, which saw the equity markets of several nations plunge more than eighty percent in less than two years, a drawdown the severity of which American investors have not experienced since the Great Depression. The point of this post is not to articulate the history and causes of the Asian crisis, – there are many detailed resources available for that, – but rather to illustrate that even modern markets can be subject to near total wealth destruction in less time than many of us can even imagine.
The countries most affected by the 1997 crisis were Korea, Singapore, Malaysia, Indonesia, Thailand, and the Philippines. In the roughly ten year period prior to the crisis, all of these markets had generated handsome returns for investors, with the Philippines and Indonesia doing particularly well, generating total returns (in dollar terms) of more than 500% and 700%, respectively.
However, the crisis hit very hard, and suddenly, and the panic routed the equity markets of all these nations, even the generally more stable markets of South Korea and Singapore:
Howard Marks – Anticipate – And Avoid – Pitfalls That Others Will Rue After The Fact
Several nations like Indonesia and Singapore recouped and surpassed their pre-crisis highs within a decade, – just in time for the global financial crisis, – while the rest have only recently reached new heights:
The lessons of the Asian financial crisis are, in my opinion, chiefly these. First, there can be huge risks associated with investing in single markets, particularly those in the emerging world with less stable currencies, more concentrated markets, and more volatile political backdrops. Secondly, even drawdowns of almost 100%, – such as that which Greece is currently experiencing, – do not have to be death sentences. Assuming productive policy shifts and a resumption of normal economic activity, a recovery from the brink of total loss is possible, though it almost certainly will take patience to realize.
This article first appeared on http://www.fortunefinancialadvisors.com/
