A number of factors contributed to an increase in the cost of foreign capital for many emerging-market jurisdictions. First, the international perception of greater risk with respect to emerging markets as a whole tended to worsen regardless of whether specific markets were actually caught up in the turbulence or not. Hence, yield spreads over the equivalent United States Treasury securities of a broad geographical range of benchmark bond issues widened as the collective emerging-market risk premia increased and credit ratings declined. The average spread against comparable United States Treasury maturities for a group of selected benchmark yankee bonds from East Asian sovereign and corporate issuers grew from 167 basis points in mid-May to 394 basis points by the end of October (see Figure 16). By the end of the year, the average had widened to 416 basis points: among the ASEAN-4, Indonesian 10-year sovereigns traded the highest spread, at 700 basis points (May 21st: 112bp), while Malaysia's Petronas 10-year yankees, at 230 basis points (May 21st: 66bp), traded the lowest spread.

Figure 16: Yield spreads for selected yankee bonds of East Asian sovereign and corporate issuers
Source: Salomon Smith Barney Thailand: Government of Thailand 2007 Indonesia: Government of Indonesia 2006 Malaysia: Petroliam Nasional 2006 Philippines: Philippines Long Distance Telephone Company 2017 Hong Kong: Hong Kong Mass Rapid Transit 2005
Figure 17: Yield spreads for selected yankee bonds of Latin American sovereign and corporate issuers
Source: Salomon Smith Barney Argentina: Multicanal 2007 Brazil: Petrobas 2006 Chile: Enersis 2006 Colombia: Government of Colombia 2007 Mexico: Pemex 2007

The cost of domestic capital also increased as local sources grew short in supply. This was a particular feature of East Asian markets, where not only confidence but also the financing capacity of domestic investors declined severely. Companies typically raise capital for business expansion through public offerings. During a bull market, such offerings are especially attractive to businesses because it is argued that they can price these offerings above the intrinsic value of the shares because investors believe that the impact of speculative flows on share prices will outweigh the premia on the intrinsic value that they pay. If this the case this won't necessarily This essentially translates to cheaper funding. Conversely, the argument goes, companies in a bear market may have to price their offerings at or below the intrinsic value which effectively raises their cost of funding. In the case of an under-subscription, the company's reputation may fall with the effect that future cost of capital for that company may rise. Sharp declines in the stockmarket, therefore, serve only to dampen sentiment and increase the cost of funding for companies. This hinders capital formation and ultimately translates to a slowdown in business expansion and investment.

Hence, during the recent crisis, many issues were abandoned or postponed indefinitely on account of high price-volatility and sharply-depressed prices. Underwriters were not keen to become involved in what were now highly risky primary-market ventures, especially at a time when many of them faced financial difficulties of their own.