Ling Huawei: How to Manage Market Expectations to Avoid Financial Crises

What role do market expectations play in financial crises? How are expectations formed and how do they evolve? Finding answers to these questions could help countries better cope with crises in the future.

Some researchers have said that media coverage intensified and exacerbated risk contagion during the 1998 Asian financial crisis. could have stopped panicking and the crisis could have been brought under control. However, this thought simply reflects the naivety shaped by the mentality of a planned economy. Andrew Sheng, a leading researcher from the University of Hong Kong, concluded that the crisis stemmed from the overseas expansion of Japanese capital after the bursting of the Japanese economic bubble. The subsequent withdrawal of Japanese capital from Southeast Asian countries exposed shortcomings in their banking sectors that their governments were unable to manage, providing Western speculators with the opportunity to influence their monetary systems.

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