Investors are "chasing commodities" and there is a risk of new asset bubbles emerging

Nouriel Roubini said investors are "chasing commodities" and there is a risk of new asset bubbles emerging as stock markets and commodity prices surge amid record-low lending rates.

"There is a beginning of a bubble in financial markets," with "asset prices going higher," Mr. Roubini, the New York University professor who predicted the global financial crisis, said in a speech in Lisbon Friday.

Equity markets around the world have surged in recent months, with the MSCI World Index up 25% so far this year and by around 66% since its March 9 low. The price of crude oil has jumped 70% since the beginning of the year to about US$76 a barrel in New York.

Part of the increase in oil prices is "money chasing commodities," Mr. Roubini said. "There is a risk that oil can rise to US$80, US$90 or US$100 because of speculative demand" that doesn't reflect economic fundamentals, he said.

The gains are occurring as Federal Reserve Chairman Ben S. Bernanke says that he plans to keep U.S. borrowing costs low for an "extended period" and the European Central Bank and Bank of England signal that they are in no hurry to increase their main lending rates.

‘Systemic Risk'

Mr. Roubini's view that this is increasing the risk of an asset-price bubble is shared by Bill Gross, who runs the world's largest bond fund at Pacific Investment Management Co. Finance officials in Asia have also flagged such risks, part of a growing concern that the seeds of the next financial crisis may be being laid in Asia in the wake of liquidity injections by the world's central banks.

Liu Mingkang, China's top banking regulator, said Nov. 15 the dollar's decline and the U.S.'s decision to keep interest rates low have caused "huge" speculation in foreign exchange trading and affected global asset prices.

The "systemic risk" of new asset bubbles in global economies and markets is rising, Mr. Gross wrote in his December investment outlook yesterday. "The legitimate question of the day is, ‘Is a 0% funds rate creating the next financial bubble, and if so, will the Fed and other central banks raise rates proactively?'" he wrote.