Fears of Asset Bubble as Cash Pours In...

[Dennis Ng]

Common sense is uncommon. U.S. got the whole world into a Financial Crisis becos of low interest rates of 1% from year 2003 to 2004 leading to over-borrowing and Property Bubble.

They are solving the current Crisis with EVEN lower interest rates (0.25%), even more borrowing by U.S. govt.....without realising they are in the process of creating another Property bubble in Asia, espeically China, HK and even Singapore.

Cheers!

Dennis Ng, http://www.MasterYourFinance.com - when you Master Your Finances, You Master Your Destiny

4 Nov 2009
Fears of a New Bubble as Cash Pours In
Real-Estate, Stock and Currency Markets, Especially in Asia and Pacific, Are Seen at Risk
By ALEX FRANGOS and BOB DAVIS
Concerns are mounting that efforts by governments and central banks to stoke a recovery will create a nasty side effect: asset bubbles in real-estate, stock and currency markets, especially in Asia.

The World Bank warned Tuesday that the sudden reappearance of billions of dollars in investment capital in East Asia is "raising concerns about asset price bubbles" in equity markets across Asia and in real estate in China, Hong Kong, Singapore and Vietnam. Also Tuesday, the International Monetary Fund cited "a risk" that surging Hong Kong asset prices are being driven by a flood of capital "divorced from fundamental forces of supply and demand."

Behind the trend are measures such as cutting interest rates and pumping money into the financial system, which have left parts of the world awash in cash and at risk of bubbles, or run-ups in asset prices beyond what economic fundamentals suggest are reasonable.

Prices are surging across a host of markets. Gold, up about 44% this year, soared to a record high Tuesday. Copper is up about 50% in the past year. In the U.S., risky assets are rising rapidly in price: The risk spreads, or interest-rate premiums, on low-rated junk bonds have narrowed to about where they were in February 2008, before Bear Stearns and Lehman Brothers fell, according to Barclays Capital.

Policy makers from Beijing to London, seared by the fallout from burst housing and credit bubbles, are searching for ways to head off new ones. How to handle a bubble "is one of the big two or three unanswered questions at the end of this crisis," says Adair Turner, chairman of the U.K.'s Financial Services Authority. Bank of Korea Governor Lee Seong-tae hinted last month he would raise interest rates, if necessary, to prevent Seoul's housing market from lurching out of control.

"This is the beginning of another big and excessive run-up in asset prices," said Simon Johnson, a former IMF chief economist.

The symptoms of a frenzy are most evident in Asia and the Pacific, where economies are recovering most quickly. In Hong Kong, high-end real-estate prices are soaring. A luxury flat in the tony Midlevels district is expected to sell for US$55.6 million, or $9,200 a square foot, said developer Henderson Land Development Co. Elsewhere, a bidder at a city-run auction to operate food stands at February's Lunar New Year celebration recently paid a record US$63,225 for the right to occupy a 400-square-foot stall to sell fish balls and other snacks. Prices in the auction of 180 stalls were up 33% from 2008.

Over the summer, a Singapore condominium developer raised prices 5% the day before units went on sale. After dozens of would-be buyers lined up on a steamy night, the developer -- a joint venture of Hong Leong Group and Japan's Mitsui Fudosan -- held a lottery for a chance to bid on the units. Singapore home prices rose 15.8% in the third quarter, the fastest rate in 28 years.

Australian real-estate markets also have heated up. After a Melbourne property-research firm recently predicted that average home prices will double over the next 12 years, a news report in Australia's Herald Sun said: "The staggering prediction shows the importance of buying a home as soon as you can afford it because the longer buyers delay, the more chance there is that their dream will slip out of their reach."

The Australian dollar has jumped about 35% over the past 12 months as investors borrow in U.S. dollars to purchase Australian currency. The practice is propelling stock and bond markets faster than in the U.S. and Europe. Currency traders are betting that the Australian central bank, which raised interest rates by 0.25% on Tuesday, the second rise in two months, will continue tightening.

Asian stock prices are shooting up, in part due to low interest rates in the U.S. Investors looking for higher yields are borrowing in U.S. dollars and then pouring that money "into countries that are growing more rapidly," said Stephen Cecchetti, chief economist at the Bank for International Settlements, the central banks' central bank, which warned early of the last asset bubble and is beginning to do so again. "That runs the risk of creating property and equity booms in those countries."
About $53 billion has gone into emerging-market stock funds this year, according to data collector EPFR Global. Through Monday's trading, the broad MSCI Barra Emerging Markets Index this year was up 60.7%. Brazil was up 100%, and Indonesia had gains of 102.7%. Over the same period, the Dow Jones Industrial Average was up 11.5%.

Discerning a bubble is as difficult as preventing one. Rapidly rising prices aren't definitive proof. Stocks in Asian emerging markets currently trade at about two times book value, about average for the past 20 years, according to UBS. From 2004 to 2008, the price-to-book-value average was about three times. "This doesn't feel like a bubble," said Hugh Simon, chief executive of Hamon Investment Group, which manages Asia-investment funds. "There's too much skepticism" among investors.

To battle bubbles, policy makers are turning first to regulation. Singapore's authorities tightened mortgage requirements, ended real-estate stimulus policies and pledged to make more land available for development. South Korea regulators tightened real-estate lending requirements in seven districts around Seoul where prices have jumped.

"Even those who say we should respond directly [and deflate bubbles] have no idea how to do it," said Laurence Meyer, a former Fed governor. "It is easy to take a philosophical position, but hard to become operational and practical about it."

—Jon Hilsenrath and John Lyons contributed to this article.
Write to Alex Frangos at alex.frangos@wsj.com and Bob Davis at bob.davis@wsj.com

[Contrarian]

Good move by the government to announce more sale of land. Sends a signal there is no need to rush.

The owners now know they are no longer king. The buyers can take their time...

But there is no launch of land in D9, 10, 11. So high end will continue to head north...

[Dennis Ng]

Mah Bow Tan said there is no bubble.

MAS today warned that a bubble might be forming in Singapore property and urged the government to take more steps and measures to cool down the property market.

So who calls the shots? Minister of National Development of Minister of Finance? One wonders.

As an investor, I would just wait at the sideline for the moment, I think market sentiment can easily change from euphoric to cautious as more such news are announced.

9 Nov 2009 - MAS's warning of Property Bubble

The rise in risk appetite and sharp rebound in financial markets since the start of the year may have outpaced economic fundamentals, according to the Monetary Authority of Singapore (MAS) in its annual Financial Stability Review on Monday.

The MAS noted that although Asia has bounced back from the financial crisis faster than expected, the global economic outlook remains uncertain.

This is because the nascent recovery in the world's biggest economies – the United States, Japan and the European Union – has largely been dependent on government stimulus.

There is a risk that once these stimulus policies are withdrawn, their recovery will take a hit, thus affecting Asian economies, especially those that are export-dependent such as Singapore.

If economic recovery stalls, corporate earnings may come under renewed strain and corporate refinancing may become more difficult. MAS added that unemployment could also rise if the economy slows again.

Despite such uncertainties in the global outlook, Singapore's property market has taken on its own dynamic. Private home prices rose almost 16 per cent in the third quarter – the highest quarterly increase in almost three decades.

This has led MAS to warn that a speculative bubble could form.

Speaking with Channel NewsAsia, some analysts said that such a warning is timely.

David Cohen, director of Asian economic forecasting at Action Economics, said: "It's probably healthy that people are talking about a potential bubble...It's when people don't talk about a bubble, (then) things get out of hand...The fact that policy makers including the MAS are taking notice and are preparing to take some steps to dampen the exuberance, that's also welcome."

MAS said although the government has already introduced several measures in September to temper the exuberance in the market and pre-empt a bubble, more measures might be needed.

But the nature and timing of such measures would have to be balanced against the still uncertain path of economic recovery. Professor Annie Koh, SMU's Associate Dean (Lee Kong Chian School of Business), agreed: "To come up with a tight policy right now, it might kill the goose that kills the golden egg...

"So killing the golden goose means you come in with very pre-emptive measures that may make cost of funds too high, and people start getting back into risk aversion. You might even stop local consumption picking up, you might stop investments picking up, and that will derail all the signs of correction that we are hoping to move back on."

On a brighter note, MAS said local banks and insurers have remained resilient through the crisis, maintaining high capital and liquidity ratios. It added that local banks' earnings have dipped but remained above market expectations.

This, together with successful capital-raising efforts during the crisis, should enable the local banks to absorb further credit losses in the coming quarters.