Sunday, June 7, 2015

OMFIF Warns of Potential Global Property Bubble

We can add the OMFIF (Official Monetary and Financial Institutions Forum) to the list of those issuing warnings that all the central bank QE policies may be building up unsustainable bubbles. This time they warn on a possible real estate bubble forming. Below are quotes from an article in the South China Morning Post on the OMFIF warning. One added note. A thank you to a reader for pointing me to the OMFIF as a good source of information on issues related to potential monetary system changes.

"An estimated US$2.7 trillion push into real estate by the world's major central banks, sovereign wealth funds and state pension funds has raised the risk of inflating a dangerous global property bubble, a new report on public sector institutional investments warns.

"Asset price bubbles have been building up in sections of the capital markets as a result of central banks' quantitative easing, particularly in Europe. These risks may now be spreading to real estate and infrastructure investment," the Official Monetary and Financial Institutions Forum (OMFIF) said in a statement alongside publication of its new Global Public Investor survey.

The survey of the world's 500 biggest public sector institutions in 180 economies which control US$29.7 trillion of funds reveals that almost half of the investors plan to increase property and infrastructure holdings - making allocations to those areas by a larger amount than for any other asset class.
Some 28 per cent of survey respondents plan to add to their fixed income holdings, while 27 per cent said they would raise allocations to public equity markets. Just 4 per cent of funds said they would be cutting equities - the lowest indicated fall of any asset class, which implies a steady stream of capital being channelled into already frothy global stock markets."
My added comments:
It's not hard to find warnings about the dangers of bubbles in various asset categories. Here is a new article on the IMF blog issuing yet another warning about rising asset prices and also about the risk that liquidity could suddenly dry up because of the way the investments are being made in these assets. Many investment funds allow investors to liquidate at any time, but hold assets that cannot be sold quickly. So the liquidity investors believe they have may not really exist in these types of funds. 
Here is a section of this new IMF blog article:
Chances that something goes wrong are higher
We’ve had a few foretastes of the possibility of markets becoming illiquid: the October 15, 2014 flash rally which recorded one of the largest falls and then rise over the last quarter century in the most liquid market in the world, U.S. Treasury bonds; and the dislocation in foreign exchange markets following the Swiss central bank’s unexpected decision to end its policy curbing the value of its currency.
This risk of illiquidity is even more significant in many advanced economy corporate bond markets, as well as in bond markets in emerging economies that are experiencing large inflows from investment funds.
Fortunately, such liquidity crunch episodes have so far not exerted long-lasting adverse impact. But the evaporation of market liquidity today could result in more market stress with potentially adverse knock-on impact on the global economy and financial stability.

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