Are Asian Markets Overheating?

      November 06, 2009 12:15

      More and more investors are parking their money in Asian markets. Global funds have invested a total of US$16 billion into Korea, China, Taiwan and India so far this year. Over the same period, around $58.2 billion worth of money has left funds that invested in the U.S. market and $4.9 billion funds investing in Japan. Advanced countries are having problems emerging from the recession, while Asian countries have recovered faster, making the region an enticing destination for global funds.

      China, which is emerging as an economic superpower in Asia, is forecast to achieve 8.5 percent growth this year and 9 percent next year. The Chinese government is even eyeing growth in the 12 percent range next year. India's economy is expected to grow 6.4 percent next year, while Korea's is seen as rebounding to 3.6 percent growth.

      But experts warn that an influx of global investment could create another bubble in the stock and real estate markets in Asia. The World Bank said recently the convergence of billions of dollars in investment in Asian economies is heightening fears of another bubble.

      According to Emerging Portfolio Fund Research, there has been a net influx of $6.1 billion this year into funds that invest in China. Funds investing in India saw a net inflow of $2.4 billion, and Korea of $1.1 billion. Share prices at the Shanghai bourse have risen 72 percent this year, and the Indian stock market has seen a 64 percent increase. And although it has been undergoing a period of correction recently, the KOSPI has risen around 38 percent.

      In contrast, the Dow Jones rose only 11.7 percent and the Nikkei around 10 percent over the same period. Stock prices in European economies such as the U.K., France and Germany have risen only between 11 to 15 percent. Analysts forecast the bullish trend in Asia to continue next year.

      A major reason behind growing assets in Asia is the continued low-interest policy being pursued by governments around the world that is prompting global funds to borrow money cheap in advanced countries and invest it in Asia. The pump-priming measures being implemented by governments to overcome the global economic crisis have also contributed to the growth, experts say.

      Others say it is too early to talks about a bubble. Although property values have surged recently, the increase is not large compared to price levels seen in the past, according to Swiss brokerage UBS.

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