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What have we learnt 20 years on from the Asian financial crisis?

Aberdeen Asset Management

“Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning.” – Albert Einstein

Martin Gilbert is CEO of Aberdeen Asset Management

  • Twenty years ago, the Thailand’s attempts to defend the Baht signalled the start of the Asian financial crisis
  • The worst response is to make knee-jerk decisions and sell at the point of maximum pain
  • All investing is better done for the long term and doing so in emerging markets perhaps even more so

Einstein is arguably the most famous physicist in the world, but as with many of his discoveries and teachings these wise words are applicable in other areas, including, perhaps surprisingly, managing a portfolio, particularly during a financial crisis.

Twenty years ago, Thailand spent billions of dollars to defend the Thai baht against attacks from currency speculators. This was perhaps the canary in the coalmine that signalled the onset of the Asian financial crisis.

Then at the start of July 1997, Thailand devalued the baht and requested technical assistance from the IMF. In the following weeks and months, other Asian countries devalued their currencies and sought assistance. Panic selling saw stock markets tumble and the Asian growth story appeared to have come to a crashing end.

But the key to a crisis is a cool head. The UK stock market fell 22% in two days after Black Monday in 1987. Yet, as with all crises, there was a tomorrow.

We were fortunate to have Hugh Young and team located in Singapore when the Asian financial crisis hit. Having fund managers based in Asia, rather than thousands of miles away in London, was a huge advantage. They could hear first-hand from company management and policymakers, and make measured decisions. They knew only too well that the worst thing they could do was to make knee-jerk decisions and sell at the point of maximum pain.

“Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning.” – Albert Einstein

We continue to hold some of the companies that we held back then. A good example is Singapore bank, OCBC. It is a prudently managed bank that emerged from the Asian crisis in good shape. Unlike many of its western peers, it weathered the Global Financial Crisis in 2007 just fine. Today it is a regional financial services giant. Over the past 20 years its share price total return is in excess of 350%.

Our investment in OCBC is not the result of blind faith, but rather the result of meeting with and questioning management on a regular basis and an ongoing analysis of the balance sheet and business model. Our Asian equity team has met with OCBC 25 times over the past five years alone. At no point have we stopped asking simple questions or assumed that the past is a guide to the future.

All investing is better done for the long term and doing so in emerging markets perhaps even more so. They have had their share of ups and downs of their own makings – like the Asian crisis - but have also suffered from the decisions of others too. Asian and emerging stock markets experienced panic selling in the aftermath of Donald Trump’s victory last November. I can recall headlines such as “Emerging Markets Sink After Trump Victory” and “Tidal wave of selling follows Trump’s US Election Victory”. Just six months on the story has changed “Strong fundamentals lift FTSE Emerging Markets Index” and “Foreign capital is flocking back to emerging markets in Asia”.

“Asian and emerging stock markets experienced panic selling in the aftermath of Donald Trump’s victory last November.”

This turnaround is partly driven by a more considered view of the risks posed by a Trump presidency, as well as increasing confidence in the economic and earnings recovery that emerging markets are experiencing. Risks of course remain: geo-political tensions on the Korean peninsula and growth slowing in China, being just two. But it was striking that the panic about emerging markets in the West was not matched on-the-ground in the markets themselves.

When it comes to investing it is crucial to draw on lessons from the past, keep calm in the present, look to the future and continually ask questions. Perhaps Einstein’s advice can be refined to: “Learn from yesterday, survive today and invest for tomorrow. The important thing is not to stop questioning.”

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