Interesting but rather scary report in HK’s Business Week yesterday..
They write:
Hong Kong Faces ?Huge? Bubble Risk on Liquidity, Rate (Update2)
Feb. 1 (Bloomberg) — Hong Kong faces the threat of bubbles forming in its asset markets as low interest rates and high liquidity drive up prices, the Hong Kong Monetary Authority said.
The ?potential risk? is ?huge,? the Chief Executive Norman Chan told lawmakers today. The city also faces potential instability from future ?capital reversal,? once governments begin raising borrowing costs and funds flow elsewhere, he said.
Current low interest rates worldwide are unsustainable in the long run, Chan said. Capital inflows into the city amounted to HK$640 billion ($82.4 billion) in the five quarters through December 2009, the HKMA said. Equity fund raising was the main reason for the volume of inflows, Chan said.
Hong Kong has kept its base rate at a record-low 0.5 percent since December 2008 to cushion the economy from the global financial crisis. House prices jumped 29 percent last year, stoked by low mortgage rates and buying by mainland Chinese. Chan?s comments echoed his warning in December on the threat asset bubbles pose to Asia?s financial stability.
