Chinese devaluation in 1994, not devaluation of the Thai baht in 1997, triggered the Asian financial crisis, Eduardo Cabrera, senior director and chief Latin America strategist for Merrill Lynch, told members of the Florida International Bankers Association last week. The earlier Chinese devaluation, Mr. Cabrera said, allowed China to shift its trade balance to a surplus. It did not affect other Asian countries before '97, he said, but now that they have devalued, it has brought another threat.

May need to devalue again
"Given the devaluations," Mr. Cabrera said, "there is a concern that China does not have a competitive advantage anymore and may need to devalue again. "There is a need to address the currency problems in an emergency before there is a new wave of devaluations." Mr. Cabrera, a certified financial analyst and a ranking member of Merrill Lynch's institutional investor Latin America all star research team since 1992, made his remarks at an association luncheon held in the Hotel Inter-Continental Miami. "Capital markets wait for currencies to stabilize," Mr. Cabrera said. "Every morning we wake up and look at the exchange rates. They will stabilize and the trade balances will shift into surplus because these countries don't have credit to buy imports. "All they need is the capital flights to slow down and the capital markets will rally. "When Thailand blew up," Mr. Cabrera said, "its current account deficit was reaching 8% of GDP, the same level that Mexico had reached before the peso crisis. He said that was why Brazil was attacked when its deficit came close to 5%. "There is a constraint on growth," he said. "Capital markets are not going to finance growth if it creates deficits anymore."

Crisis will be short
Mr. Cabrera said the emerging market crisis will be short. "Capital markets respond within six to 12 months before that happens. The economy has not bottomed out yet but most of the bad news has already been anticipated and stock markets are starting to bounce back." According to Merrill Lynch, Mr. Cabrera said, the seven major Latin American economies will see their GDP grow by 4.8% in '98. "It's a fairly dramatic growth", he said. From a point of view of equity, he said he thinks too much money has left these countries and will return. "The most liquid stocks like Telebras or Telmex get dumped," he said. "These guys managing huge pools of investments will come back. "We tend to buy Mexico, Brazil and Argentina and their major stocks. In 1997 Latin America has been better than any region in the world, with an average return of around 30% for equities. We can get a similar type of year this year."