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In a New Asia, No 1997 Replay

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Despite the clear opportunities the region offers, many investors and advisors, particularly in the U.S., are still leery of Asia and reluctant to invest there.

That, said Brian Jacobsen, chief portfolio strategist at Wells Fargo Asset Management, has as much to do with Asia’s physical distance from North America as it has to do with the lingering and painful memory of the 1997 Asian financial crisis.

It has been almost 20 years since the debacle that caused Asian currencies to plummet, dragging the region through the wringer and pulling global markets down as well, but the crisis is still fresh in the mind of many U.S. investors, he said. That may be particularly the case now in light of the recent interest rate hike by the U.S. Federal Reserve. The Fed raised interest rates in 1997, too, and that caused further problems to Asian economies.

But Asia today is a very different place than it was in 1997.

At that time, most Asian currencies were pegged to the dollar, and this encouraged large capital inflows, excessive borrowing — in dollars — and overheated economies characterized by large current account deficits. Today, Asian countries have significant hard currency reserves, currency regimes are flexible and most Asian economies are running current account surpluses, said Edward Kerschner of Emerging Global Advisors. And although debt has been rising as a percentage of GDP, it is still well below 1997 levels.

Asian governments and many Asian corporations are a lot stronger now than they were in 1997. Not only are corporations more conservative in how much they borrow relative to their equity, but they’ve also become much more adept at hedging their borrowings, said Andrew Gillan of the Henderson International Opportunities Fund. This has resulted in stronger, more robust balance sheets, he said.

So even if corporate earnings grew only marginally last year as a result of the general global economic slowdown, the fundamentals are still in the right place.


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