Skyscraper indicator

Looking for a sign that the current liquidity fueled emerging market gains may be getting long in the tooth?

Sky high risks in Malaysia

Malaysian Prime Minister Najib Razak's recent announcement that a 100-storey tower will be built in the capital by a government investment fund comes as global liquidity is flooding the region and raises concerns the project could represent the front end of a coming new crisis.

The article also notes the usefulness of watching for the building of vanity projects:

Just as the Petronas Towers were completed, the 1997-98 Asian financial crisis struck. With additional space from the towers and other skyscrapers coming online, Kuala Lumpur’s office occupancy rate slumped to just over 80% and dropped even further into the 70% range in subsequent years. In the event, state-owned oil and gas giant Petronas moved its offices into one of the twin towers, while the other tower was gradually occupied by Petronas subsidiaries and other firms involved in the oil and gas sector.

The Petronas Towers' experience was echoed earlier this year with the opening of the world's tallest skyscraper, the Burj Khalifa, in the middle of a financial meltdown in the United Arab Emirates. A couple of years ago, when the Burj was being constructed in the midst of a property boom there, the business press in Malaysia had hailed UAE as a model for Malaysia to emulate.

No longer. Today, Malaysia bears some similarities with the 1990s when the Petronas Towers were mooted. Once again, Malaysia is emerging from a recession. Hot money is flowing back into the region with economic stagnation and more quantitative easing in store for capital-rich developed nations.

The iShares MSCI Malaysia ETF (EWM) has been a strong performer this year.