HSBC Economist Sounds Alarm Over Asian Financial Crisis Similarities

HSBC's chief economist Frederick Neumann is sounding an alarm about similarities between the current financial environment and that of the 1997 Asian Financial Crisis. One key similarity is the surge in U.S. bond yields, which climbed from a low of 0.5% in August 2020 to around 4.79% early this week.

Neumann notes that even if it took six years for the yield to reach this level last time, it has jumped by 80 basis points since February alone. The U.S. Treasury's recent announcement of buying back $2 billion in bonds, which will at least double to $4 billion, is another concern.

Another similarity with 1997 is the weakness of the Japanese yen, which has depreciated by 57% from a low of about 103 in January 2021. Markets are currently weighing the potential for another intervention, and Neumann says this could unnerve investors.

The tech optimism that gripped markets before the 1997 crisis is also being seen today with the AI boom. However, Neumann argues that while there are similarities, the differences between now and then outweigh them. The majority of Asian economies were importers of capital in the 1990s, but today they are exporters.

Neumann warns that Asia faces a new kind of vulnerability - 'demand vulnerability'. If rising U.S. bond yields or a weaker yen weighs on the AI hardware boom, demand for the region's goods could buckle and growth will fizzle.