Where the next big bubble will blow up

As Western economies spend the next few years struggling to repay their debts, the easy money pumped into the system by their central banks could end up inflating a bubble in Asian and emerging markets.

"All major bubbles have been fuelled by easy money," says Citigroup. And now money is "excessively easy". Banks have slashed interest rates and printed money to stave off a slide into deflation. Globally, real interest rates are at historic lows and have been negative for three quarters. And the easy-money phase is set to endure "at least until the second half of next year".

But where will the liquidity resulting from this largely Western pump end up? Money tends to flow "to the best investment stories", says Christopher Wood of CLSA. These days that means emerging markets. "There is a real possibility" of an asset bubble developing in Asian and emerging equities.

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