US could trigger new crisis

Donald Tsang said there was a risk of 'unprecedented market turbulence' in currencies, bonds and stocks. -- PHOTO: REUTERS

YOKOHAMA - HONG Kong's leader warned on Friday that a move to inject billions of dollars into the ailing US economy could inflate Asian asset bubbles and trigger a repeat of the region's 1997-98 crisis.

Chief executive Donald Tsang said there was a risk of 'unprecedented market turbulence' in currencies, bonds and stocks and warned that Hong Kong is ready to take new anti-speculative steps to cool its over-heated property market.

'I am very much concerned about the impact of the US second round of quantitative easing on Asian economies,' Tsang said, referring to the Federal Reserve's controversial US$600 billion (S$779 billion) attempt to reflate the US economy.

Critics worry the cash surge will not only further dilute the value of the dollar but add to the flood of money that is chasing higher returns in Asia and dangerously inflating stock, bond and property markets.

'This has increased the risk of asset bubbles, which will impact on our financial stability as well as regional and global economic growth,' Mr Tsang said at a business forum in Yokohama, Japan.

The popping of 'emerging bubbles in different pockets' of Asia's securities and property markets would be 'highly infectious', he said, warning: 'And the end result is you can see a second wave... similar to the one we had in 1997 and 1998, when there was an over-exuberance in our markets. This is exactly the case now.'