Wednesday 2 December 2009

Past is no clear guide to risk of contagion



Investors and economists nervously watching events unfold in Dubai have been seeking the guidance of precedent. Could this be Thailand in 1997, when an apparently isolated currency devaluation ended up engulfing a region and a global asset class in crisis? Could it even be Creditanstalt in 1931, when the failure of an Austrian bank helped to turn a stock market crash into the Great Depression?

As of Tuesday, market participants were coalescing around answers of No and No. True, there are some parallels with the 1997-98 Asian crisis, and it could be months before the true impact is clear. But the size and nature of the Dubai problem suggest that contagion can be contained.

“Last week it looked briefly as though this was a regionwide or even global issue,” said Gerard Lyons, chief economist at Standard Chartered. “Now it looks like a local one.”

No comments:

Post a Comment