The sequel

In 1998, the world’s most famous hedge fund (Long Term Capital Management) collapsed due to what was later known as the Asian currency crisis. It involved the Thai bath, the Indonesian Rupiah, the Korean won, and a few others. It was almost 30 years ago, and some things have changed. But currently, we have some stress on some Asian currencies again, and it’s inevitable to remember those days. As an example, take a look at the chart below: at the bottom, the Korean Kospi index, which has shoot up almost vertically over the last 18 months. On the top chart, the Korean Won, which has been depreciating rapidly against the dollar. At some point the Korean central bank may decide to intervene to stop the weakening, which may affect the stock market, which will force foreign investors to sell stocks (mostly AI related) and sell the Won to get back to dollars, weakening the Won even more. If you look at Japan, it’s a similar situation. Nikkei up strongly for the year, and the Yen almost at 160 vs USD, where the BoJ has drawn the intervention red line. Both economies are net exporters, and both of them hold U.S. treasuries in reserves. What do you think they’ll do with those bonds when there is a need to defend the currency? Are we witnessing a sequel of ‘98 Asian crisis?

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