Final Word-r1:AMM grid in qxp 12/24/09 9:51 AM Page 76
FINALWORD
BubblementalityputsAsiaonalert
R
Recession,whatrecession?ThesignsaremountingthatAsiahas However,wordsarecheapandactionsslow.Abubblecould
shruggedofftheglobalfinancialcrisisthatearlyonwasbilledas alreadybeforminginmanyAsiancountriesandregulatorsneed
thenextGreatDepression. toworkmuchmoreaggressivelytopreventit.
Stockmarketsarebuoyant,propertymarketshaverebound- Onewayistohikeinterestratesfasterthanplanned.
edandunemploymentinmanyAsiannationsisstabilising.Allin Certainlythiscouldendangertheregion’scontinuingrecovery,
allithasfosteredaperceptionofeconomicturnaround. butregulatorsmusttakethebiggerpictureintoaccount,which
ButlookhalfwayacrosstheworldtotheUS,andmattersare callsformoredecisiveaction.
farlessrosy.Itmayhaveexitedaneartwo-yearrecession,butthe Theywillalsoneedtocurblending.Abubblecannotexist
nationisgrapplingwith10%unemployment,risinghomefore- withoutleverageandsogovernmentsmustusefinancialpolicy
closuresandbudgetingconsumers. anddirectivestobankstobemorecautiousaboutlending.
Giventhedisparitybetweenthetwosides,Asiacanaffordto RegulatorsinAsiamightwanttotakealeaffromChina.
besmug.Yettheregioncouldwellfinditselfinsimilarlygrave Worriedaboutthesurgingpropertyprices,itlaunchedanumber
circumstancesinafewyearsifregulatorsfailtotakedecisive ofmeasurestocooltheheatedrealestatemarket.Pricesin70
action. citiesincreasedby5.7%inNovemberfromayearago,thefastest
TheUSisexperiencinglifeafteranassetbubblehasdeflated. pacein16months.
TheAmericandreamofhomeownership,togetherwitheasy Theauthoritieswillre-instituteasalestaxonresidentialprop-
credit,fueledthecountry’srealestatebubblethatfalteredin ertysoldwithinfiveyears.TheStateCouncilhasalsopromisedto
2006.Thatcollapsehelpedtokick-starttheglobaleconomic controlpropertypricesandupthesupplyofaffordablehousing.
meltdown. Investorswillnotbeveryhappyaboutanycoolingmeasures.
Ithasbeenapainfullessonandhaspromptedwarysenior InChina,forexample,anyonewhoboughtintotheShanghai
executivesandregulatorsinAsiatowarnofassetbubbles. CompositeIndexatthebeginningof2009wasenjoyingan80%
NormanChan,chiefexecutiveoftheHongKongMonetary gainbyearlyDecember.Itisdifficulttoforeseesimilarresultsin
Authority,recentlysaidinaspeech:“BasedonexperienceinAsia 2010,especiallywithpotentiallymoregovernmentclampdowns.
inthepasttwodecades,Ibelieveasset-pricebubbles,ratherthan Certainly,assetbubblesaregoodintheshorttermbecause
inflation,posethegreatestrisktofinancialstability.” theymakepeoplefeelwealthier,buttheconsequencescanbe
HongKongshouldbeworried.Propertypriceshavesurged severe,asregulatorsarewellaware.
29%thisyearandoptimisticanalystsbelievedoubledigit LooknofurtherthantheAsianfinancialcrisisin1997/98.
increasesareinstorefor2010. Asiannationsenjoyedaninvestmentboomthatledassetprices
StockpricesinthecityhavealsobenefittedfromtheHK$640 tosoar.Butwhenthecrisisstruck,suchpricescollapsedand
billion(US$83billion)infundsthathaveflowedinsince muchwealthwasdestroyedinthemulti-yearrecessionthat
Octoberlastyear,accordingtofiguresfromtheHongKong ensued.
MonetaryAuthority(HKMA).ByearlyDecember,theHangSeng Iftheassetbubblegoesunchecked,2014coulduncannily
Indexhadrisen50%sincethebeginningof2009. resemble1997.Pricesforassetssuchasstocksandproperty
TheHKMA,thecity’sdefactocentralbank,warnedinaquar- wouldhavebeeninflatedtoludicrouslevelsandasuddencrash
terlyreportonDecember16thatassetpricescouldexperience wouldhavedevastatingeffects.
sharpcorrectionsifthefundflowsreverse. Onecaneasilyimaginetheresultingcurtailmentofcredit,
Chanadded:“Iamcertainthatonceabubbleiscreated,it riseinnon-performingloans,collapseinprices,shifttoausterity
willgrowwithimmensepowerandsuppressingitwillbediffi- andlowgrowththatwouldmostlikelyleadtoanotherthree-year
cult.Thebiggerthebubble,thegreaterthedevastationitwill recession.
causewhenitbursts. AsiansliketofingertheUSastheculpritforthislatestfinan-
“Thebestwaytoavoidthedamageandheavycostistopre- cialcrisis.ButifregulatorsinAsiadonothing,wecouldwellhave
venttheoccurrenceofabubbleortocontainitbeforeit’stoo tit-for-tatinafewyears’time.
late.”
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76 DEC2009/JAN2010 ASIAMONEY
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