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Irina Bevza reviews a personal account of the financial crisis that ushered out the twentieth century.

Russell Napier, The Asian Financial Crisis 1995-98: Birth of the Age of Debt (Harriman House, 2021), 341pp.

Russell Napier is an established voice in the investment industry with a career spanning over thirty years. In his new book The Asian Financial Crisis 1995-98, Napier reflects on the time that he worked as an Asia equity strategist in one of Asia’s largest stockbrokers – Hong Kong-based Credit Lyonnais Securities Asia (CLSA). In his role, Napier was tasked with writing a research column advising professional investors on investing in Asian markets. He ironically titled his research “The Solid Ground”, referencing Van Morrison’s song “Northern Muse”. In his new book, Napier uses the content published from 1995 to 1998 to assess contemporaneous advice on investments “in the teeth of one of the world’s greatest financial crises”. Napier emphasises that his book aims “to allow the reader to learn from mistakes made in the heat of investment battle without ever having to waste any of their financial ammunition”. To this end, he describes what market practitioners thought would happen in Asia, although he does not offer an historical account of the events. Along the way, Napier also gives a few anecdotes about the adventures of being an Asia strategist travelling around the world meeting investors.

By 1995, the South Asia region’s current accounts were in significant deficit and worsening. High current account deficits indicated that exchange rates were overvalued, and the region had become reliant on net capital inflows to finance those deficits – if that capital didn’t arrive, then monetary policy would tighten, and growth would slow. The foreign institutional investors’ strong capital inflows into Asian equities were attributed to the “Asian economic miracle” – supposedly the result of an Asian culture of hard work and hard saving that led to high levels of economic growth. Napier warned investors that capital inflows into Asian equities were highly liquid and could leave as quickly as they arrived, thus putting continuing economic growth in question.

What now seems like a reasonable argument was an unpopular contrarian opinion at the time as “many people were getting rich through pay and bonuses, financed by commission from capital inflows, and also by investing in the booming stock markets themselves”. Napier describes the challenges that he came across trying to alert investors of the long-term risks that he could see emerging. He writes, “that I survived as an analyst offering daily bearish opinion had much more to do with luck than anything else”. Napier’s book provides an account of the pressures that one holding an opinion opposite to the performance of the market faced during that period. Even though investor perception changed slowly as cracks in the narrative of the Asian miracle began to emerge, being a messenger of bad news remained a difficult task for Napier.

Napier goes on to explain the role that the Asian Financial Crisis has played in the formation of challenges that the global economy faces today – challenges such as the excessive debt burden and inequality of income and wealth in the developed world. In the aftermath of the Asian Financial Crisis, many Asian policymakers accumulated sizeable foreign currency reserves to protect their economies from volatile short-term capital flows. This extensive accumulation of foreign currency via purchasing US Treasury securities structurally depressed yields and led to growth in debt levels globally as the cheaper debt was used to finance purchases of assets. “While the asset owners, the leveraged players and their agents benefited from the boom,” Napier explains, “those whose jobs were negatively impacted by the competition from Asia saw their standard of living decline”. Thus, the Asian Financial Crisis built the foundation of the age of debt – hence the book’s subtitle – and contributed to income and wealth inequality.

Napier concludes the book with the suggestion that the most viable method to reduce debt burdens is creating inflation to destroy the real value of debt. Finally, he parts by leaving readers with a hint that his next book will discuss what has followed the age of debt. In this way, The Asian Financial Crisis 1995-98 discusses the unfolding, peak, and aftermath of the Asian Financial Crisis and links events over twenty years ago to the problems that the global economy is facing at present, making it relevant for investors and policymakers today. In addition, the book explores a complex topic that lies at the cross-section of macroeconomics and finance. And it is here that the author’s personal experience makes the events outlined come truly alive.

Irina Bevza is a PhD candidate at Trinity College Dublin. Her research interests include corporate governance, finance, and economics. She has been working in the investment industry for almost ten years. She also holds a Chartered Financial Analyst designation and chairs a member value committee at the CFA Ireland society.