HK c.bank warns of asset price risk, fund inflows

HONG KONG Nov 20 (Reuters) - Hong Kong's central bank chief Norman Chan warned that Hong Kong asset prices could rise sharply next year and disconnect from fundamentals, raising the risk of a bubble, and surging capital inflows posed a dilemma across Asia.

"With interest rates exceptionally low and with abundant liquidity around the world, Hong Kong faces the potential risk next year that asset prices may go up sharply and become increasingly disconnected from economic fundamentals," Hong Kong Monetary Authority Chief Executive Norman Chan wrote in an article published on the HKMA website.

"But we should bear in mind that many other Asian economies are also experiencing similar problems arising from substantial fund inflows and rising asset prices," Chan said.

"In theory, these economies could of course raise interest rates to contain inflation and increases in asset prices. But the fear is that once interest rates are raised the carry trade will become even more active, attracting even more fund inflows. Asian economies are therefore facing a dilemma." (Reporting by Susan Fenton, Editing by Jacqueline Wong) (susan.fenton@thomsonreuters.com; +852 2843 6367; Reuters Messaging: susan.fenton.thomsonreuters.com@reuters.net)