July marks the 20th anniversary of what was considered to be the start of the Asian Financial Crisis (AFC), which sent shockwaves through the region and beyond. The crisis was thought to have started in Thailand in the summer of 1997, although its roots stem from even earlier systemic problems, namely in the financial sector.

Thailand’s currency, the baht, had been pegged to the US dollar, but on July 2, 1997, the government shifted to a floating exchange-rate system, effectively devaluing it. With Thailand’s foreign exchange reserves drained from months of defending against currency speculation, economic peril ensued. The same currency speculators pounced, further exacerbating declines.

As an investor in 1997, it was a very difficult time. In the lead up to the crash, we’d heard from a number of Thai companies that were finding it cheaper to borrow in US dollars because the interest rate on US-dollar loans was so much lower than Thai-baht loans.

Of course we were a little concerned about currency risk, but suggestions from the Bank of Thailand that it would defend the value of the baht if required, appeared to reassure companies.

Unfortunately when the value of the baht collapsed, some of these companies found themselves in deep trouble. A number of high-flying companies loaded with debt went bust and, of course the Thai stock market (in which we were invested) headed south very fast.

This proved to be a good lesson in the benefits of diversification, since although the Thai market declined and selling at a fair price was difficult, there were other investments we had around the world to give us liquidity in our strategies if it was needed. The good news was that redemptions were not excessive and most of our investors took the long-term view that we encourage.

At a personal level, however, it was disastrous for so many individuals in Thailand and other countries. One top executive at a prominent company in Thailand was bankrupt as a result of the crisis so he took up selling sandwiches on the street to make money.

The crisis in Thailand spread throughout Asia and when various vulnerabilities were exposed in the affected countries, confidence in emerging markets in general declined. The crisis also had a spillover effect on markets outside of Asia, with Russia and Latin America facing crises of their own soon after, dealing emerging markets yet another blow.