Читать книгу The Foreign Exchange Matrix - Barbara Rockefeller - Страница 27

Before the Asian Crisis of 1997-98, a big risk event was fairly well contained to the country in question; now a Brazilian limit on foreign investor inflows has a spillover effect not only on the Mexican peso, but also the Korean won. The Asian Crisis was the first time we saw the attitude toward risk shifting from a single country basis to a global basis. What began as a run on the Thai baht in May 1997 (leading to devaluation in July 1997) spread to investor selling of the Malaysian ringgit, Philippine peso and Indonesian rupiah, among others. In the autumn of 1997 and early 1998, Asian currency jitters sent shock waves around the world, with other emerging market currencies feeling the heat as investors exited existing emerging market long positions and sought safe-haven currencies.

By May 1998, the Russian stock and bond market had collapsed, along with the Russian ruble. Russian officials were forced to triple interest rates to 150% to prevent the ruble from falling further. In June of that year, the Japanese yen succumbed to downward pressure, with the Bank of Japan and the US Federal Reserve intervening to prevent further yen weakness. The dollar-yen topped out at ¥147.65 before ending the year at ¥113.45.

By August 1998, the Dow Jones Industrial Average had fallen over 500 points and, by September, Federal Reserve Chairman Greenspan promised to lower US interest rates as the Nikkei 225 hit a 14-year low and other global stock indices also fell dramatically. In addition, troubled US hedge fund Long-Term Capital Management (LTCM) received a $3.5 billion bailout. LTCM had been counting on the convergence spread in fixed income to make tiny arbitrage gains magnified by high leverage, a strategy designed by not one, but two, Nobel Prize winners. Like others, they had never heard of contagion on this scale.

In the autumn of 2008, the Fed initiated a series of interest rate cuts to stabilise US financial markets. The International Monetary Fund (IMF) announced bailout packages for Russia and Brazil. The market began to stabilise in the first quarter of 1999 and the Dow Jones Industrial Average climbed back to over 10,000. Investors breathed the first sigh of relief in nearly two years. While traumatic, the events of that period provided investors with a valuable education. They learned the hard way that, as New York Times columnist Thomas Friedman would later write, “The World is Flat.”