The global credit crisis has hit Asia with a vengeance for the first time, triggering a massive flight to safety as investors across the region pull out of risky assets.
Yields on three-month deposits in China and Korea have plummeted to near 1pc in a spectacular fall over recent days, caused by panic withdrawls from money market funds and credit derivatives.
“This is a severe warning sign,” said Hans Redeker, currency chief at BNP Paribas. “Asia ignored the credit crunch in August but now we’re seeing the poison beginning to paralyse the whole global economy,” he said.
Korean and Chinese three-month yields have fallen from 4pc to 1pc in a matter of days in a eerie replay of events on Wall Street in late August when flight from banks and the US commercial paper markets caused yields on three-month Treasuries to falls at the fastest rate ever recorded. Asian investors appear to be opting for deposit accounts with government guarantees.
“..Asian investors appear to be opting for deposit accounts with government guarantees…” Welcome, Asia, to the real world. Sometimes things do go awry. Shall we all gather around the fire and roast hotdogs togther and see what happens next?