In July this year will be the 10th Year Anniversary of the Asian Crisis. While historians will debate the exact start date, many peg it to July 2, when Thailand devalued the baht, setting off a wave of speculative attacks that sank currencies throughout East Asia. Economies soon followed.
We all know the cyclical nature of economies and markets. When a crash occurs, it takes years for people to forget the trauma of losses. But after sufficient time, animal spirits return, and the balance between the contending forces of capital preservation versus capital appreciation turns to favor the risk takers. Today, how many remember the countless names of bankrupt companies or shuttered banks that hogged the headlines in the tumultous years of the late 1990s?
Today, we are in the midst of a bull market in the Philippines. Have we built up the excesses that inevitably occur in any expansion, excesses that destabilize the economy and ultimately makes it vulnerable to any shock? This week, the stock market index plunged 7.9 percent in one day, after a wave of selling coursed through markets throughout the world, though it quickly recovered the next day. Is that a sign we've entered ursine territory, or is it merely a pause that refreshes?
The evidence on the ground is that fundamentals are sound. Real, end-user demand in the real estate market, the epicenter of earlier speculative excesses, remains strong. More than 8 million Filipinos live abroad, monthly sending home billions that keeps household spending buoyant. And at this stage, there's still an element of conservativism ruling corporate boardrooms; many of those who got burned in 1998 (when the consequences of the 1997 currency collapses came home to roost) remember, so they are loathe to bet the farm.
The conclusion: very little lactic acid in this bull's legs.
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