The global economy may be poised for the creation of a massive and potentially explosive “dollar carry trade” — just like the pre-crisis yen carry trade, only more frightening and potentially much bigger.

The warning was issued today at a summit of Asia Pacific leaders in Singapore and comes as a diverse variety of assets have begun to display bubble-like patterns of inflation: everything from gold and copper to fine wine and Hong Kong penthouses.

The dollar carry trade, whereby investors borrow dollars at near zero interest rates to fund asset-buying sprees around the world, has been lurking as a possibility since the collapse of Lehman Brothers last year and the extreme monetary response to its aftermath.

And as the carry trade grows more popular among investors it could add yet more downward pressure to the already falling greenback — especially if the “carried” (borrowed) dollars are immediately sold to buy non-dollar denominated assets in China or Singapore.

Many analysts now believe that it was the sudden unwinding of the yen-carry trade — immense pockets of investment funded by cheap borrowed yen — that sent the ripples of the Wall Street crisis so destructively around the world last autumn.

Carry trades — borrowing at low rates to fund higher return assets — make perfect sense until markets turn sour and exchange rates shift too violently. At that point, the rush for the exit wildly exacerbates any crash. A collapse of the dollar carry trade has the potential to be even more harmful, principally because of its scale.

While a few prominent financial gurus have already warned of the threat of an emerging dollar carry trade, governments have steered clear of commentary on the issue until now. But today, talking on the sidelines of the Asia Pacific summit in Singapore, Donald Tsang, Hong Kong’s chief executive, admitted openly that the dollar carry trade had begun to spread and that the prospect “scared” him.

Washington’s response to the recession, he said, ran the risk of emulating the behaviour of Japan after its own bubble collapsed in 1989 and allowing overly loose policy and a rock-bottom cost of money to inflate asset bubbles around the world. “Gyrations in financial markets and bubbles in asset markets remain ahead of us,” he added.

Hong Kong is perhaps closer to the new asset bubbles than others: house prices there have risen 28 per cent this year and records for land price sales have been set with thudding regularity over recent weeks.

Behind Mr Tsang’s concern, though, is the fixed relationship between the Hong Kong dollar and the greenback — the “dollar peg” that is the cornerstone of Hong Kong financial policy but is currently forcing Hong Kong interest rates to be much lower than the monetary authorities there would like. Hong Kong’s property inflation is, in effect, being driven my mortgages that are cheaper than they should be, but the authorities are limited in how they can respond.

Observers who have warned darkly of the emerging dollar carry trade include Nouriel Roubini, the chairman of RGE Monitor, an economic consultancy firm. He believes that the prolonged ability to borrow dollars cheaply risks planting the seed of the next financial catastrophe. Carry traders, he said recently, feel more comfortable with their positions because of the Federal Reserve’s promise to keep rates “exceptionally low” for an “extended period”.

Others have tentatively raised red flags over the trade. Also attending the APEC meeting in Hong Kong, Robert Zoellick, the preisdnmet of the World Bank, noted that the risk of allowing liquidity to flow into equity and property markets in the region. “In East Asia, if you start to get a strong rebound in growth, and you've got a lot of liquidity, there is the question of whether one could start to face asset bubbles in particular markets,” he said.

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