The sheer mention of the phrase “second global financial crisis” is enough to jolt global markets back into fear, particularly emerging economies. After the 2008 global crisis, emerging markets were hailed as promising growth hubs and key centers for banking and investment operations after developed economies went down the pan and suffered the most from the collapse.
Now, leading credit agency Standard & Poor’s has pinpointed Asian economies as the most sensitive to the prospect of a second global downturn, which would also probably lead to a bout of sovereign downgrades in the region. It primarily boils down to their exposure to offshore markets alongside ongoing efforts to repair dents in their budgets from the previous crisis which have left them weak and highly exposed to a second financial blow.
A ‘#gfc2” – the circulating Twitter hashtag for “global financial crisis 2”- would likely create a “deeper and more prolonged impact” than the last one, S&P said, simply because economies are not yet above-surface to gasp for breath and recover yet from the first.
Briefly returning to the 2008 crash, many may remember S&P for its “part” in the downturn, which initially flowed from the country’s subprime mortgage crisis. Both S&P and Moody’s were the main triggers of the global financial crisis, a United States Congressional Committee revealed earlier this year in a report.
Both ratings agencies had continued to give top ratings to mortgage-backed securities months after the housing market began to collapse, the Senate committee found. There then was a “flood of downgrades” in July 2007, which the panel said was “perhaps more than any other single event ... the immediate trigger for the financial crisis.” Meanwhile, internal documents released by the Senate also showed how both agencies failed to act on their own warnings about the deteriorating mortgage market.
But this time, S&P made it clear it was not actually predicting a rerun of the credit crisis which crippled world economies. It just gave a “what would happen if…” scenario, in which case Asia would be victim.
Sure enough, after the S&P statement on Asian markets, Asian stocks tumbled on Tuesday amid fears of another possible global recession, as was widely parroted in the media. Hong Kong slid 6 percent and South Korea at one point plummeted nearly 10 percent as investors continued to flee stocks after US downgrade and European debt crisis jitters spread. Japan’s Nikkei 225 index had also plunged 2.3 percent to 8,892.12, while Hong Kong’s Hang Seng sank 6 percent to 19,258.51 in its sixth-straight trading day of losses.
The distress signals are clear, these stocks need help. Notions of a renewed slowdown are now deeply immersed in global sentiment with credit agencies nudging it along with predictions and concerns; is the world expecting it? Are we just waiting for it to happen? Leaves me wondering whether this sentiment overpowers anything politicians can do to avert a second crisis.