COVID-19 is the latest in a long line of shocks to hit Asian markets and economies. Given how benign Asian markets have been over recent years, it’s easy to forget just how frequently Asian markets have dropped precipitously over the longer sweep of time.

COVID-19 is the latest in a long line of shocks to hit Asian markets and economies.

Given how benign Asian markets have been over recent years, it’s easy to forget just how frequently Asian markets have dropped precipitously over the longer sweep of time.

For example, since 1980 Hong Kong has suffered a steady series of market crashes, many of which have long faded from memory. A few of us were around for the 1983 handover crash in Hong Kong, and the October 1987 collapse when the Hang Seng Index fell over 40%1 after a combination of debt concerns, financial engineering and imperfect electronic trading systems took the US market down. Less than half of Asia ex Japan’s population today had been born by the time Hong Kong collapsed again by over 20% in a single day in 1989 following Tiananmen Square.2 Hong Kong went on to have further serious market crashes in 1997, 2000, 2003 and 2008, when it fell by over 50%. Despite these falls, the Hang Seng Index in Hong Kong has managed to return a respectable 11% a year since 1980 for long-term investors.3

Other Asian markets have seen similar, frequent collapses over time. Some have been the result of mistimed or poorly designed government policies. In December 2006, the Thai market fell 16% in a single day following a failed attempt to introduce capital controls to arrest a strengthening currency. Some are the result of a single unanticipated incident, be it a terrorist attack, a sudden escalation in conflict across one of Asia’s many contested borders or a market scandal. For example, the Indian stock exchange fell 13% in a day in 1992 following the Harshad Mehta stock exchange scam. These shocks tend to fade from market memories quickly and asset prices often bounce back quickly.

In other cases, Asian market crashes have been the result of a sudden shock that delivers an immediate economic hit as well as exposing more fundamental underlying problems, such as during the Asian Crisis of 1997, the “TMT” (technology, media and telecoms) bubble of 2000 and the 2008 “GFC” (Global Financial Crisis). The same appears to be true with COVID-19. While the immediate origin of the shock is a healthcare crisis that has transferred to an immediate economic crisis following the global “lockdown” response, the crisis has also exposed some of the more serious underlying structural challenges facing Asia today.

Or to put it another way, the impact of COVID-19 in Asia is likely to be both short and long-term.