Tags: hsbc | asian | bubble

HSBC Sees Mind-Boggling Asian Bubble Ahead

Friday, 13 Nov 2009 11:07 AM

By Dan Weil

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Asia will face a bubble of “mind-boggling size” if it doesn’t tighten monetary policy, says HSBC senior economist Frederic Neumann.

"It hasn't even started yet," he told CNBC.

"There's a lot of talk about Asia already being in bubbles. But we think really the process has just started and usually these things run for two or three years. Unless we get tightening in the next 12 months or so, it will become uncontrollably large."

And why does Neumann think the bubble hasn’t already formed? Stocks haven’t even reached their 2007 peaks in many Asian markets, he points out.

Also, “There’s no leverage being created in Asia,” Neumann says.

“For example in Hong Kong, you have mortgage lending growth still declining. Yes, we have higher property prices because of cash transactions, but we don’t have credit in the system. For economists at least, that’s what’s required to define it as a bubble.”

Still, Neumann says that without a reversal of monetary stimulus, the dreaded bubble will arrive.

"The heart of the matter is that the cost of capital is too low in Asia. We need to have monetary policy decoupling in addition to growth decoupling.”

Investment legend Jim Rogers agrees with Neumann that Asia hasn’t entered bubble territory yet.

In terms of emerging market stocks, “They’re certainly all up a lot, and maybe they’re too high,” Rogers told Bloomberg. “But being too high is not a bubble.”

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