Hong Kong: Asset Bubble Trouble?

This Reuters Report (8 December 2009)discusses the potential asset bubble purportedly developing in Hong Kong. As such the government is “very concerned” about the risk of an asset bubble developing although one is not apparent as yet.

The government spokesman did not point to any potential measures to combat the city’s main concern which is property prices, but his remarks reflect worries in many emerging markets over a flood of cash flowing into their economies seeking higher returns.

Both Brazil and Taiwan have imposed capital controls to try to limit the inflows and policymakers elsewhere are talking about potential measures they could take.

“We are very concerned about the risk of an asset bubble,” Tsang,the spokesman told legislators. “The risk is there but it is not very apparent.”

In Hong Kong, residential property prices have jumped 30 per cent this year and the luxury sector is up more than 40 per cent after the city drew a record US$73 billion (RM248 billion) in capital inflows between October 2008 and Nov 13 this year.

Tsang said the financial system was sound and the city could cope with capital inflows and outflows, but he echoed similar concerns voiced by Hong Kong Chief Executive Donald Tsang and central bank chief Norman Chan.

Hong Kong, like other economies in Asia, is watching warily for the formation of asset bubbles to avoid compromising nascent economic recovery.

The Hong Kong Monetary Authority, the central bank, recently reduced the maximum mortgage for luxury properties to 60 per cent from 70 per cent of the price in an effort to cool the market, and mortgage demand has eased from a few months ago.

But the HKMA is more tied than many central banks because the Hong Kong dollar’s currency peg to the US dollar means it has to adopt Federal Reserve monetary policy. US rates have been held between zero and 0.25 per cent since December.

Any possiiblity of that happening in Malaysia since we are desperately starved of cash inflows?