ADB warns of asset price bubbles risk

Manila, March 18 (IANS) The Asian Development Bank (ADB) warned Monday of risk of asset price bubbles as local currency bond markets in East Asia expanded by 12.1 percent last year.

According to the Asia Bond Monitor issued Monday by the ADB, East Asia had $6.5 trillion in outstanding local currency bonds by the end of 2012 versus $5.7 trillion at the end of 2011. That marked a quarterly increase of 3 percent and an annual increase of 12.1 percent in local currency terms, reported Xinhua.
Thiam Hee Ng, senior economist in ADB’s Office of Regional Economic Integration, said “emerging East Asia is much more resilient than it used to be but governments still need to be careful that the surge in capital inflows doesn’t fuel excessive rises in asset prices and that they are prepared for a possible reversal in the flows when the economies of the United States and Europe pick up again”.

The flows of funds by foreign investors picked up pace in recent years because of low interest rates and slow or negative economic growth in developed economies while emerging East Asia has enjoyed high growth rates and appreciating currencies.
The fastest-growing bond market in emerging East Asia in 2012 was Vietnam, 42.7 percent bigger than at end 2011, largely due to the rapid expansion in the country’s government bond market. The Philippine and Malaysian markets grew 20.5 percent and 19.9 percent respectively, while India’s market expanded by a strong 24.3 percent to $1 trillion. Japan still has the largest market in Asia at $11.7 trillion.