Stephen Jen landed in Hong Kong in early January 1997 as Morgan Stanley’s newly minted exchange-rate strategist for Asia.
He was soon working around the clock when investors began targeting the region’s currency pegs, first felling Thailand’s in July. The rout spread through Asia before rocking Brazil and Russia. It led to the collapse of Long-Term Capital Management, an event that introduced the Federal Reserve-brokered bailout.
If the 48-year-old native of Taiwan, with a PhD from Massachusetts Institute of Technology, sounds a little jaded now, it’s not without some reason. He worries that many emerging-market analysts are too young to remember the late 1990s. Instead they learned the ropes in an era dominated by the rise of Brazil, Russia, India and China -- a supposed one-way bet to prosperity.
“Many became EM specialists after the term ‘BRIC’ was coined in 2001 and don’t know any serious crisis,’’ says Jen, who now runs the London-based hedge fund SLJ Macro Partners LLP.
The youngsters are about to be schooled. Jen says echoes of 1997-1998 may be at hand.
Investors woke up today to Russia’s 1 a.m. interest-rate increase to defend the ruble. There’s the mounting likelihood of a Venezuelan default. Stocks from Thailand to Brazil are reeling. The Fed hasn’t even begun raising interest rates.
Jen is bracing for more pain.
“At some point, the risk of fractures in parts of EM will rise sharply,” said Jen.
While unwilling to draw up a blacklist for now, he says exchange rates reveal emerging-market dangers. Russia’s ruble, Brazil’s real, Mexico’s peso, Turkey’s lira, the South African rand and Indoniesian rupiah have all hit the skids.