Bloomberg – It used to be that we searched for economic icebergs in Asia. Now we are on the lookout for Icelands.
Last week, Iceland became the first developed economy to seek aid from the International Monetary Fund since 1976. It needed a $2.1 billion bailout after investors realized it wasn’t running an economy, but a hedge fund.
While Ukraine, Belarus, Hungary and Pakistan are also lined up at the IMF’s door, Iceland’s woes are getting special attention. The thought that even a western European economy that once had an AA rating could implode are bringing back uncomfortable memories about Asia’s crisis a decade ago.
The question zooming around markets is this: If the worst- case scenario plays out and the crisis continues, could Asia experience another 1997? Equally important, will investors know it when they see it?
Watch the banks, say analysts such as Mark Matthews of Merrill Lynch & Co. in Hong Kong. “Bank shares are the canary in the coalmine,” he says.
