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If Asia's loose monetary policy is left unaddressed it will ultimately blow a bubble of "mind-boggling size" that could become uncontrollable without fiscal tightening, Frederic Neumann, economist at HSBC, told CNBC Tuesday.
"Unless we get tightening in the next 12 months or so, it will become uncontrollably large," Neumann said.
Even though fears of an Asian asset bubble are widespread, Neumann thinks the process hasn't even started yet and will be years in the making. But once it starts it could be almost impossible to stop, he said.
- Watch the full interview with Frederic Neumann above.
"It hasn't even started yet," Neumann said. "There's a lot of talk about Asia already being in bubbles, but we think really the process has just started and usually these things run for two or three years."
Asia is nowhere near "bubble territory" yet and some places in the region have only just recouped last year's peak in asset classes such as property, Neumann said.
The cost of property has seen steep rises throughout Asia in recent months, adding fuel to the argument that there is a potential bubble brewing in the region.
Legendary investor Jim Rogers has also publicly rebuked the idea that Asia is already in the grip of a widespread property bubble. But he did tell the Financial Times that he wouldn’t buy real estate in Hong Kong or Shanghai.
"The heart of the matter is the cost of capital is too low in Asia. We need to have monetary policy decoupling in addition to growth decoupling and that hasn't really happened yet," Neumann told CNBC.
"For that to happen we need to see exchange rates appreciate in Asia," he added.
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