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Yahoo! My Yahoo! Mail More Yahoo! Services Account Options New User? Sign Up Sign In Help Yahoo! Search web search Home Singapore Asia Pacific World Business Entertainment Sports Technology Singapore Asia Pacific World Alarm over asset bubbles returns with recovery AFP - Thursday, November 26 Send IM Story Print Alarm over asset bubbles returns with recovery Slideshow: Full Photo Coverage: Business & Economy PARIS (AFP) - – Asset bubbles are coming back, riding the waves of easy money that are now pulling the world economy from recession into unsteady recovery. And now voices are being raised, warning policymakers to burst them early this time, rather than allowing them to run on and derail the rebound. The latest alarm call comes from World Bank president Robert Zoellick who wrote in the Financial Times on Wednesday that "asset bubbles could be the next fragility as the world recovers, threatening again to destroy livelihoods and trap millions more in poverty." The flood of money flowing into equity, commodity and real estate markets, made available to investors in recession-strapped economies by accommodating central banks, has policy-makers and analysts worried, particularly regarding asset inflation in Asia. The Group of 20 industrialised and emerging market powers "had better put asset price bubbles and new growth strategies on its agenda," Zoellick said. "Otherwise, the solutions of 2008-2009 could plant the seeds of trouble in 2010 and beyond." In Moscow on Wednesday, Russian Finance Minister Alexei Kudrin said that Russian financial markets were now overheating in the face of an influx in speculative capital. "We have received a large volume of speculative funds from world markets," he said in comments carried by Russian news agencies. Russian financial indices, he added, were "overheating because of funds flowing from world markets." The RTS, Russia's principal exchange, has risen 120 percent since the start of the year, while another index, the Micex, had shot up 131 percent, according to Kudrin. Analyst Chris Weafer of the Moscow investment bank Uralsib said investors stayed away from Russia for most of this year, unnerved by falling oil prices and an overall slide in the oil-powered economy. But with oil prices on the rise Russia has again become an attractive investment option. Writing in the Financial Times, Zoellick recalled that last year, when the world economy was nearly strangled by a credit crunch, "central banks opened the money spigots," slashing interest rates and using new means of making liquidity available to businesses and investors. "And it worked," Zoellick said, but added that the question now is: "where will that money go?" Besides Russia, the big draw is Asia, where according to Zoellick a welcome economic rebound "is accompanied by rising equity and property prices." House prices in China surged in October by the biggest amount in 14 months, he noted, adding that gold prices are rising and those of other commodities are likely to as well. But the social consequences of such trends could be severe. "The combination of loose money, volatile commodity markets and poor harvests -- such as occurred recently in India -- could make 2010 another dangerous year for food prices in poor countries." Under such circumstances, Zoellick insisted, "waiting for asset bubbles to burst and then cleaning up the aftermath is now a new lesson of what not to do." But he acknowledged that one traditional remedy, raising interest rates, as Australia did recently, could stifle recovery if the increases were introduced too abruptly. Policymakers elsewhere in Asia are now trying different approaches, according to Zoellick. Singapore, for example, where property prices jumped 16 percent in the third quarter, has released more land for development and taken measures to prevent borrowers from deferring payments. Other measures include targets for the growth of bank credit and imposing limits on bank lending for real estate development, Zoellick said. In developed countries, where central banks have made it clear they want to keep interest rates low, margin requirements on stocks could be applied and higher downpayments required on speculative transactions. In the United States, analyst Fred Dickson at DA Davidson has said that "global concerns continue to rise about an emerging global asset bubble fuelled primarily by the US Federal Reserve's low interest rate policy." Officials in India, South Korea and Indonesia were also considering policy moves "to limit the flow of hot speculative money into their stock and real estate markets," he said. For several weeks financial markets have been sending a variety of signals of unease about the path of recovery as and when authorities begin to withdraw some of the vast quantities of money and credit put into the system. The price of gold is rising from record to record, partly because the dollar is weak, and analysts on government bond markets also warn of inherent tensions. In the eurozone, against this background of slow recovery and concern about asset inflation, the head of the European Central Bank Jean-Claude Trichet insisted on Monday that the ECB has a strategy to withdraw crisis liquidity at some stage. "It is still premature to declare the financial crisis over," he said in Madrid. "But when the appropriate time comes, there should be no concern about the ECB's determination and ability to exit." 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