Economic Bubbles in Emerging Markets

The terror that caused the financial crisis and all the efforts being made by governments and central banks of each country could be generating a new crisis, a new asset bubble in the housing market in particular, equities and currencies of 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 coherently.

Just enough to think a few seconds to realize that all prices have gone up. To give an example, copper rose by about 50% in the last 12 months. Gold is another example, an increase of 43% so far this year. In contrast, in the United States the differences or 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 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 over possible bubbles in asset prices. The IMF also said that "a risk of escalation in asset prices in Hong Kong is driven by liquidity conditions in short-term divorced from the fundamental forces of supply and demand."

A former minister of the International Monetary Fund said it is forming a large and excessive run-up in asset prices. Referring to Hong Kong, prices of real estate in more affluent areas skyrocketed. As an example, a luxury apartment in Midlevels costs about U.S. $ 55.6 million.

Another country to analyze is Australia. The Australian dollar has appreciated by 35% in the last 12 months, as investors borrowed in the U.S. currency before switching to the Australian currency. This operation is best known as the carry trade is promoting faster stocks and bonds in Europe and the United States. Forex brokers in Australia are hopeful that the Australian central bank will continue raising interest rates.

According to a report from one of the largest asset management houses, close to some 53,000 million dollars were invested in emerging markets. Until a few days ago the index representing the emerging markets had grown by 62% so far this year. Countries such as Brazil recorded an increase of 100%, while Indonesia saw an increase of 102%. Compare these percentages with 11% who grew the Dow Jones Industrial Average and we get good conclusions.

But when the U.S. Federal Reserve interest rates rise, 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 thus destabilize the global financial system.

http://www.juancoccaro.com/