Return of the Asian Flu By: Gabriel PotterMBA, AIFA® 2020.02.18

Speculative investment bubbles are nothing new.  Back in the mid 1990’s, a lot of US and European investors began to notice the economic realignment of the global economy to Asia and started to pump money into the markets available at the time, like South Korea and Taiwan.  While the economic reorientation was very real (the dragon economies of East Asia have sharply grown over the past two decades), but the investment pace did outpace the near-term reality which could have backed a more stable inflow.  When the speculative bubble finally burst in 1997, the Asian markets tanked first, but the pullback affected markets everywhere.  The New York Stock Exchange experienced its greatest single-day point decline (554 points, a record for the time) and shut-down trading across the entire system. 

The so-called “Asian Flu” of 1997 gave Investors learned a sharp lesson about the feedback and complexity of interconnected systems.  US focused investors found out there aren’t always effective ways to arrest a contagion as it spreads across the globe.

Today, more than twenty years later, the Asian flu which is shocking markets is much more literal – the Covid-19 “Corona” virus.  While epidemiologists suggest the virus, while dangerous, does not reach the most dangerous echelons of contagions (measured by lethality and transmission vectors), it is already putting a damper on economic growth in Asia.  A slowdown in growth felt in this massively populated region can assuredly dampen business prospects everywhere else.  It is unknown if developed countries (like the US) equity markets will benefit from a relative safe-haven status, but it is more likely that actual economic activity will go down despite any boost in the markets.

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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