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The Asian Stock-Market Fallout in the Mid-90's.

In 1988, they were called the "tiger" economies: Thailand, Malaysia, Taiwan, and Indonesia; the "dragons" were China, Hong Kong, Singapore, Japan, and South Korea. But after seven years of success, the bubble burst and the prominent economies came crashing to the ground. It was caused by the reforms instituted by the Clinton administration that brought jobs and boosted income, enhancing the American people's purchasing power. The world witnessed a powerful and vibrant U.S. dollar that led a scrambling of dollar-buying immediately resulting to a worldwide recession.

As of December 20, 1995, Asia saw its stock markets falling as much as 400%, posting negative growth rates all over. The winners, however, that stock analysts even recommended investing in was Turkey - up to a -3% from a five-year struggling -30% - and Indonesia, from -8% to 9% (Rothschild 33).

Analysts explain that the Asian decline was partly caused by an overpricing of stocks and political uncertainties. In China, for example, economic reforms by its then head-of-state Deng Xiaoping, began opening a floodgate of heavy inflow of foreign investment, threatened by an apparent entry of hard-line political successors. During this period, a capital flight from Hong Kong was beginning to ensue for fear of the communist takeover in 1998 when the British ceded control back to the Big Red Dragon. In the middle of all this, there has been a growing disagreement between China and the United States, in the latter's presenting of issues concerning human rights violation, trade, copyright infringement, nuclear proliferation, and its relation to Taiwan.

On the stock market level, Moody's Emerging Markets Service had observed that as of 1988, the Asian stocks were already overpriced, with an average selling of equities at 30 times earnings. By 1993, after a frenzy of buying, Asian stocks were bid up more than 35 times earnings, and therefore unsustainable. The fallout had brought it to a more realistic 22 times earnings. In coming up with this, Moody had devised an ingenious measure of stock-market valuation. Called the price-earnings ratio, it compares a company's share price to its annual earnings per share. It revealed that Malaysian and Indonesian stock markets had grown more than 25% in earnings per year, much faster than stock values. In the Philippine and Thai markets, by contrast, stock prices grew faster than earnings (Jacob 18)

In general, what has kept the Asian economy going were the Japanese investments throughout the region. In 1995, Asia witnessed huge amounts of Japanese savings flowing through as investment capital, sparking a steady mid-term economic recovery and a series of stock-market surges (Branegan 42) in Thailand, China, Malaysia, Taiwan, and Singapore, as predicted at the World Economic Forum held in the first quarter of 1996.

References:

Branegan, Jay. "Rough Ride Ahead." Time 4 March 1996: 39-43.

Rothschild, John. "That Mutual Feeling." Time 4 March 1996: 30-36.

Jacob, Rahul. "Letters To My Jailers." Time 4 March 1996: 18.


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