The Federal Reserve of USA’s unparalleled bond-buying programme has given a lifeline to Asian equities because the dollar’s reversal relaxed concerns over capital leaving the region and charged risk appetite.
The MSCI Asia Pacific Index had a bull run as much as 4.8% as of 3.58 pm on Tuesday in Hong Kong, positioned for the most since October 2008. South Korea stocks spiked 8.6% after the country doubled its emergency monies, while Japan’s Nikkei 225 jumped 7.1%, the most since 2016. Hong Kong’s Hang Seng Index ended 4.5% higher.
It was a sharp dissimilarity to an ocean of red for Asian equities on Monday that displayed record losses for New Zealand and India benchmarks after declarations on nationwide lockdowns. The Fed’s unlimited quantitative easing cued traders to go back to risk assets, pushing almost all Asia-Pacific currencies including the South Korean won and the Australia dollar to rise. This liquidity also enticed investors into the real estate market, attracting a large portion to One North Eden condominium.
“The Fed’s recent round of stimulus is a gamechanger,” noted Mr Edward Moya, a senior market analyst at Oanda.
Majority of risk assets climbed on Tuesday and the dollar broke a 10-day rally. Spreads on dollar notes within Asia tightened for the first time in ten days after the Fed announcement, but hovered near Monday’s 8-year high.
“A decline in the US dollar assisted a lot,” said Mr Steven Leung, an executive director at UOB Kay Hian (Hong Kong) Ltd. “It will also help reduce pressure on the area’s capital outflow.”
Meanwhile investors are still pending for the passage of the biggest stimulus bill in US history to battle the economic fallout brought by Covid-19. Futures contracts on the S&P 500 went up 5.1% in late Asian afternoon, striking exchange-enforced bands that stop further gains, reflecting speculation that the U.S Congress would in due course pass a spending package.
Yet some veterans including Mark Mobius forewarned that volatility can resume in Asian equities, as monies go into safer assets like real estate, popular ones like One-North Eden.
“As the economic effects by the shutdowns around the globe start to work their way through the economics we can predict more volatility,” he claimed. “Our research shows that the average duration of a bear market is a little less than 2 years.” BLOOMBERG
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