Published : Feb. 11, 2014 - 19:42
Lloyd Blankfein, chief executive officer of Goldman Sachs Group Inc. (Bloomberg)
Goldman Sachs Group Inc. Chief Executive Officer Lloyd C. Blankfein said emerging markets are better able to weather an investor retreat now than in 1998, when currency turmoil spread and forced international bailouts.
“There were a lot of things in ’98 that don’t exist now,” Blankfein, 59, said in an interview Tuesday with Bloomberg Television’s John Dawson in Hong Kong while attending the Goldman Sachs Global Macro conference. Those markets now have “better reserves, more flexibility in exchange rates, better policy orientation,” he said.
Emerging-market stocks posted their worst start to a year since 2009, evoking comparisons to the Asian financial crisis, as China’s economy slowed and the U.S. Federal Reserve began paring monetary stimulus. Investors including Mark Mobius, who oversees $50 billion in developing-nation assets at Templeton Emerging Markets Group, are predicting the worst isn’t over.
“There were tailwinds for the emerging markets over the last several years” with low interest rates globally attracting funds into those markets and commodity prices climbing, Blankfein said. “The risk returns to roost, not possibly, but inevitably. It has to. It’s part of a cycle.”
In the late 1990s, Asian nations including South Korea and Thailand spent reserves trying to defend exchange-rate pegs, only to eventually devalue and seek International Monetary Fund bailouts. As currencies became delinked from the U.S. dollar, investors attacked in waves that culminated in Russia’s debt default and the collapse of hedge fund Long Term Capital Management.
“Barriers were defended, and when they gave way, it was like a tsunami coming through a dike,” Blankfein said of that crisis. “Central banks of those countries were very underwhelming,” while governments were trying to hold currencies at untenable rates, he said.
What happened in 1998 “wasn’t the end of the world,” Blankfein said. Those countries have been “doing very well” for the last 10 to 12 years, he said.
“It’s going to be like three steps forward, one step back,” he said. “Money was flowing very freely ― in some cases, maybe freer than it should have ― into emerging markets and that’s going to have to consolidate.” (Bloomberg)