HSBC's chief economist warned of the risk of a repeat of the 1997 Asian financial crisis

The current situation in Asian markets is strikingly similar to the one seen in Asia before the 1997 financial crisis, says Frederick Neumann, HSBC’s chief economist for the Asian market. At that time, the market turmoil led to recessions across the region, currency crashes, capital flight, and bank failures, notes CNBC.

Today, this situation is reflected in the sharp rise in U.S. Treasury yields, the weakening of the Japanese yen, and optimism regarding technology companies, Neumann wrote in a note dated August 31, noting that in the run-up to the 1997 Asian financial crisis, all of these factors also dominated the financial landscape.

— An HSBC economist cited the rise in yields on U.S. Treasury bonds as the main similarity between the current situation and the pre-crisis period of 1997. Before the crisis, in November 1994, the yield on 10-year Treasuries had jumped to about 8% from 5% in October 1993. In April 1997, this figure stood at about 7%, which was roughly 200 basis points higher than four years earlier, Neumann noted. Today, the yield on 10-year Treasury bonds has risen from a low of 0.5% in August 2020 to approximately 4.79%—a high not seen since January 2025—on September 1.

“Of course, it took six years for this [rise in government bond yields] to happen, but this year alone, the figure has risen by about 80 basis points from 3.9% in February,” Neumann noted.

— The economist cited fluctuations in the Japanese yen as another similarity. In April 1995, the yen was trading at a cyclical low of 80 per dollar, but by April 1997, it had weakened to 130, marking a decline of nearly 55%. Currently, the yen has depreciated by 57%—from a low of about 103 per dollar in January 2021 to a high of 163 in July, after which a rare joint intervention by U.S. and Japanese authorities strengthened the currency to its current level of 160 per dollar; markets are now assessing the likelihood of another intervention, Neumann noted.

— The third parallel he drew was the optimism surrounding technology: before the 1997 crisis, markets were buoyed by the rise of the Internet, and today the artificial intelligence boom is creating a similar effect.

However, the differences between the market conditions in 1997 and 2026 “outweigh the similarities,” Neumann wrote. The key difference is that in the 1990s, most Asian economies were capital importers—they received more investment from abroad than they invested overseas, — and did not have sufficient savings to cover their expenses.

“Rising borrowing costs in dollars and a volatile yen, which had unnerved investors, were [at that time] the key catalysts for tension in the region,” Neumann noted.

Today, however, the economist continued, Asian economies are capital exporters, and therefore the higher cost of borrowing in dollars and the weakening of the yen do not create as much pressure as they did several decades ago.

However, this does not mean the region is completely secure, Neumann emphasized: In his view, Asia’s main vulnerability today stems from its dependence on the U.S. hardware boom for artificial intelligence, which supports the growth of electronics exports from South Korea, Japan, Taiwan, and Singapore. “Instead of financial vulnerability, as in the 1990s, Asia now faces demand-side vulnerability,” the economist wrote.

He warned that if rising U.S. Treasury yields and borrowing costs were to dampen the boom in artificial intelligence hardware, or if the yen were to destabilize global capital markets once again, demand for Asian goods could drop sharply, and economic growth in the region would slow.

This article was AI-translated and verified by a human editor