(WASHINGTON, D.C.) -- The World Bank, representing 186 countries, sees signs of a coming market crash in the inflated prices in real estate, stocks and currencies now being traded around the world.
Here is what the World Bank is seeing:
- In Hong Kong, a luxury condominium in the affluent Midlevels district is expected to sell for US$55.6 million, or $9,200 a square foot,
- In Singapore, home prices rose 15.8% in the third quarter, the fastest rate in 28 years.
- In South Korea, regulators tightened real-estate lending requirements in seven districts around Seoul where prices have jumped.
- In Australia, the Australian dollar has jumped about 35% over the past 12 months as investors borrow in U.S. dollars to purchase Australian currency.
- From Beijing to London, rebounding economies are attracting huge inflows of capital, due to low interest rates around the world.
- About $53 billion has gone into emerging-market stock funds this year.
- The 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%.
The crash is especially imminent in Asia and the Pacific Rim, the bank states.
In a warning that some international observers say is unusual for the 65-year-old institution, the bank states governments and central banks themselves may be fueling the crash.
They are doing it, the bank states, by pushing hard to overcome the current Recession. In so doing, they are also helping to create asset bubbles in real estate, stock and currency markets--notably in China, Hong Kong, Singapore and Vietnam.
"This is the beginning of another big and excessive run-up in asset prices," notes Simon Johnson, a former chief economist.at the International Monetary Fund.
Please see related Real Estate Channel articles:
"SPECIAL REPORT: Hong Kong faces property bubble explosion as home prices rise 28% this year, Nov. 1, 2000" and "GLOBAL REALTY CAPITAL MARKET: Nov. 2, 2009"
To battle bubbles, policy makers are turning first to regulation. But that isn't convincing everyone the predicted crash could be stalled. Rapidly rising prices aren't definitive proof, some argue.
"Even those who say we should respond directly [and deflate bubbles] have no idea how to do it," says Laurence H. Meyer, a former Federal Reserve Bank governor. "It is easy to take a philosophical position, but hard to become operational and practical about it."
"This doesn't feel like a bubble," says Hugh Simon, chief executive of Hamon Investment Group, which manages Asia-investment funds. "There's too much skepticism" among investors.
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.
Adair Turner
The WSJ reports 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," says 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," Cecchetti says.
The World Bank is not a bank in the common sense. The bank is made up of two development institutions owned by 186 member countries--the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA).
The IBRD focuses on middle income and creditworthy poor countries, while IDA focuses on the poorest countries in the world. Together, the bank provides low-interest loans, interest-free credits and grants to developing countries for a wide array of purposes that include investments in education, health, public administration, infrastructure, financial and private sector development, agriculture, and environmental and natural resource management.
Robert B. Zoellick, an American career diplomat, is the current and 11th president of The World Bank. He has served in that position since June 2007.
Leave a comment