Precedent · Other
The Asian Financial Crisis
1997–1998
The 1997-98 Asian Financial Crisis. Thailand's baht devaluation cascaded across Asian currencies and equities, triggering capital flight and IMF bailouts, and ultimately the August 1998 Russian default and the LTCM collapse. A currency-peg-break, EM-contagion, and leverage-unwind episode.
The signature
Each variable's peak deviation from the pre-event baseline, with the curve shape, the lag before it moved, and how long the recovery ran.
| Variable | Peak deviation | Shape | Lag / Recovery | Confidence |
|---|---|---|---|---|
| S&P 500 1998 LTCM dip; the US transmission channel | −19% | V | 0d lag · 180d | high |
| Brent Crude Demand collapse drove oil to ~$10 by 1998-99 | −35% | Step | 30d lag · 540d | medium |
| Realized volatility Vol exploded Aug-Oct 1998 | +130% | Spike | 0d lag · 200d | high |
Methodology
EM currencies devalued sharply, EM equities crashed, and capital fled to safety. The US felt it mainly through the 1998 LTCM dip — a sharp, V-shaped ~19% S&P drop — and through collapsing commodity demand (oil fell hard into 1998-99). The signature is peg break -> contagion -> hidden-leverage unwind. Shapes: V (equities), spike (vol), step (oil down).
What's different now
Read for EM fragility and hidden leverage: currency pegs plus dollar-denominated debt plus thin reserves are the vulnerability. Today's large EMs hold far more reserves and float their currencies, but dollar-funding stress still transmits fast through leveraged players — the LTCM lesson, not just the baht one.