Asia’s Markets Are Starting To Look A Lot Like 1997, HSBC Says. But The Biggest Risk Is Different This Time.

Rising U.S. Treasury yields, a sharply weaker Japanese yen and intense investor enthusiasm around a new technology boom are giving markets an uncomfortable resemblance to the period before the 1997 Asian financial crisis, HSBC said. However, it noted that the region's main vulnerability has changed dramatically since then.

HSBC chief economist Frederick Neumann pointed to those parallels in a recent note, arguing that current financial conditions share several features with the run-up to the crisis that eventually triggered currency collapses, capital flight and deep recessions across parts of Asia. CNBC reported that Neumann nevertheless believes the differences between then and now outweigh the similarities.

Higher U.S. borrowing costs are one of the clearest comparisons, with the benchmark 10-year Treasury yield trading around 4.79% Tuesday after climbing roughly 80 basis points since February. The yield had also risen sharply ahead of the 1997 crisis, moving from about 5% in late 1993 to nearly 8% in 1994 before remaining close to 7% in early 1997, according to HSBC's analysis.

Pressure from the bond market has intensified again in recent weeks, prompting the U.S. Treasury Department to announce that it will at least double the maximum size of liquidity-support buybacks for longer-dated debt from $2 billion to at least $4 billion per operation beginning Sept. 9. The 10-year yield reached 4.79% Tuesday as a global bond selloff deepened, Reuters reported.

The yen provides another parallel because its recent decline closely resembles the depreciation seen before the Asian crisis, falling about 57% from roughly 103 per dollar in early 2021 to a July low near 163. Japan and the United States intervened jointly to support the currency last month, but the yen has since slipped back toward 160, prompting renewed speculation about further action. Japanese and U.S. officials agreed Tuesday to continue coordinating on orderly currency moves, according to Reuters.

Despite those similarities, Asia today is much less reliant on overseas financing than it was in the 1990s, when many economies needed foreign capital to fund domestic investment and spending. Neumann said most countries in the region are now net exporters of capital, making higher dollar funding costs and a weaker yen less likely to trigger the kind of financial contagion seen three decades ago.

Instead, Asia's exposure has shifted toward demand for technology products, particularly the semiconductors, memory chips and electronics used in artificial intelligence infrastructure. South Korea's exports surged 68.7% from a year earlier in August, extending their growth streak to 15 months as global technology demand remained strong.

Neumann said a slowdown in U.S. AI investment could therefore hit Asian manufacturers through weaker demand rather than through a financial-system crisis. If higher borrowing costs begin to restrain spending on AI infrastructure, he warned, electronics exports that have supported growth across several Asian economies could lose momentum.