Emerging market crisis? That was then, this is now
Almost a decade after being battered by the Asian financial crisis, emerging market investors are getting a worrying reminder about political risk from the streets of Budapest to the barracks of Bangkok.
This time, however, they reckon things are different and lessons have been learnt. Greater diversification and more sophisticated scrutiny of assets mean global investors are better able to cope with sudden surprises in any one country.
The risk of contagion one crisis spreading across borders to create an even bigger one is, accordingly, seen as small.
A number of investors even see immediate "knee jerk" falls in Thai baht and bond prices after Tuesday's military coup and potential stock weakness on Thursday when the bourse opens as buying opportunities.
"I increased," said Rajeev De Mello, Pictet Asset Management's head of Asian fixed income, when asked what he did with the Thai debt in his portfolio.
Why the calm?
Many big players have become more cautious about how they invest in emerging markets as a result of the 1996–97 meltdown. They try to be far more choosey about which markets they invest in and which they avoid.
"Investors are much more wary about lending money to countries with large ... imbalances," said Michael Simms, a former fund manager who is now director of political risk at advisers Exclusive Analysis.
In a similar vein, what was seen as diversified risk a decade ago holding assets in different emerging markets is now more complex.
"If you think you are diversified because you have the Philippines and Indonesia, you are not because they both move in the same direction when there is a significantly bad risk event," Pictet's De Mello said.
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