Economic Bubbles in Emerging Markets

The terror caused the financial crisis and all the efforts being made by governments and central banks in each country could be generating a new crisis, a new asset bubble, especially in the housing market, stock exchange and the Asian continent.

One of the techniques applied by the U.S. government to reduce interest rates and inject cash into the financial market cash has flooded the world, which could be forming a bubble, ie increases in the prices of some assets without justification consistent.

Just enough to think a few seconds to realize that all prices have risen. To give one example, copper rose nearly 50% in the last 12 months. Gold is another example, an increase of 43% so far this year. In contrast the differences in the United States or the spreads between the debt of poor quality with the highest quality have reached the levels of February 2008, before the collapse of Lehman Brothers and Bear Stearns.

Anyway the clearest symptom of this unstoppable growth are occurring in Asia and the Pacific as they are the economies that have recovered more quickly. All are already wondering how to efficiently manage potential financial bubbles.

The other day looking for information on the World Bank on this issue found that the sudden said that billions of dollars of capital in East Asia is generating panic about possible bubbles in asset prices. The IMF also said that "a risk that the escalation in asset prices in Hong Kong is driven by conditions of short-term liquidity divorced from the fundamental forces of supply and demand."

A former minister of the International Monetary Fund said it is forming a bull run and excessive in asset prices. Referring to Hong Kong, real estate prices in the wealthier sectors soared. For instance a luxury apartment in Midlevels costs about U.S. $ 55.6 million.

Other countries to consider is Australia. The Australian dollar has appreciated by 35% in the last 12 months, as investors borrowed in the U.S. currency and then passed to the Australian currency. This operation better known as the carry trade is promoting faster stocks and bonds in Europe and the United States. Foreign exchange brokers in Australia are hopeful that the Australian central bank will increase interest rates.

According to a report of a major asset management houses, near some 53,000 billion was invested in emerging markets. Until a few days ago the index representing the emerging markets had grown by 62% so far this year. Countries like Brazil have increased by 100%, while Indonesia saw an increase of 102%. Compare these rates with 11% who increased the Dow Jones Industrial Average and we can draw good conclusions.

But when the U.S. Federal Reserve interest rate rise, the investors will be able to move their funds to the U.S.. In another report, the Bank of Korea said that when the Fed raises interest rates could cause serious problems for the outflow of funds from emerging markets and thereby destabilizing the global financial system.