No two time periods are exactly alike, but often, history can provide a useful laboratory to set expectations and assess probabilities. Learning from the past in this way can help you keep proper perspective on more recent headlines. It is with this in mind we point out a recent CNBC interview, in which Fisher Investments' founder and CEO Ken Fisher drew parallels between recent volatility and 1997's Asian Contagion. (See embedded video below from CNBC.)
Ken Fisher: 'Fool's Game' to Time This Market
In 1997, a global correction was born in Thailand, after its currency (the baht) came under extreme pressure due to their currency being pegged to the fast-rising dollar. When Thailand succumbed to reality and broke the peg, pressure shifted to other Asian nations with similar unsustainable currency policies, notably, Korea and Indonesia. In October 1997, the S&P 500 fell about -11%, including one of the biggest single-day declines in market history (October 27, 1997's -6.9% drop-bigger than August 24, 2015's), triggering media comparisons to terrible Octobers past, claiming it was "The Cruelest Month" for stocks.[i]Headlines claimed the "Asian Miracle" (the emergence of Asia during the 1990s) was a "Mirage." Newspapers' front pages were littered with worries over the potential for Asian weakness to spread (e.g., "Will Asia's Malady Infect the World?").
Today, similar headlines are easy to find. Many fret September's arrival after a weak August. Still others presume Chinese growth has been fictitious all along. (We don't necessarily buy the precision of these figures either, but you can easily confirm growth trends via trade partners and private businesses.) Many presume the world economy is teetering on the brink of recession, quashed by a faltering China. The false fear in 1997 was Asian nations would infect the world, causing a recession. The parallels between then and now are many.
They aren't perfect. Again, no two time periods are exactly alike. But in many ways, the present correction is based on less actual evidence of weakness than then. In 1997 and 1998, Asia experienced a regional recession. Currency pegs broke and devaluations were in the double digits. Today, we have China's tiny -3% devaluation and economic data are mostly in line with recent trends-more modest slowdown, no hard landing.
Whether or not the recent correction reached its low on August 25, we can't say. Timing and pinpointing sudden shifts in sentiment is impossible. But in our view, the pressure on stocks since late August has all the classic signs of being a 1997-like correction, not something worse.
[i] We are reminded of the famous Mark Twain quote: "October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February." We don't endorse speculation, though, which is different than investing.
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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.