Stocks and currencies in emerging markets led an Asian rally yesterday following a surprise decision by the US Federal Reserve to keep its massive stimulus program intact.
The announcement to hold off winding down its US$85 billion a month bond-buying fueled a buying spree on Wall Street, sending the Dow Jones and the S&P 500 to record highs.
Asia took up the baton yesterday, with under-pressure developing economies breathing a sigh of relief after suffering a heavy sell-off last month as investors bet on the Fed tightening its monetary policy.
Jakarta surged 4.64 percent, Manila jumped 3.08 percent, Mumbai climbed 2.73 percent and Bangkok rose 3.25 percent.
In Tokyo, the Nikkei rose 1.80 percent, or 260.82 points, to close at 14,766.18.
Sydney rallied 1.10 percent, or 57.4 points, to finish at a new five-year high of 5,295.5, while Wellington added 1.05 percent, or 49.21 points, to close at 4,753.03.
In the afternoon, Hong Kong jumped 1.63 percent. Taipei, Seoul and Shanghai were closed for public holidays.
In an eagerly awaited announcement, the Fed said it would keep the stimulus in place as it wanted to further gauge the economic impact of public spending cuts and a spike in interest rates in the past four months.
Instead it cut its growth forecast for this year and next as US Federal Reserve Chairman Ben Bernanke warned of possibly “very serious consequences” from a brewing political battle in Washington over a new budget and the US debt ceiling.
“The Federal Reserve’s policy is to do whatever we can to keep the economy on course and so if these actions led the economy to slow, then we would have to take that into account, surely,” he told reporters.
He said the bank could still start reducing the bond-buying — which aims to hold down long-term interest rates — in the next three months, but only if the economic outlook improves.
“There is no fixed calendar,” Bernanke said.
Most economists had expected the Fed to begin tapering its spending — with forecasts of a reduction of US$5 billion to US$15 billion — after weeks of upbeat data that suggested the US economy was at last gaining strength.
However, Matthew Sherwood, head of investment market research at Perpetual in Sydney, said: “It is a pretty patchy recovery and it is a sign that the US is not ready for a reduced stimulus.”
With the prospect of vast sums of cash continuing to be pumped into financial markets, the US dollar sank in New York to ￥98.13 from ￥99.20 in Tokyo earlier in the day, while the euro jumped to US$1.3511 from US$1.3353.
Later yesterday, the US dollar picked up slightly against the yen, buying ￥98.39, but the euro rose to US$1.3528. The European single currency also fetched ￥133.10 against ￥132.55.
However, the main beneficiaries of the news were emerging economies, which have suffered a torrid few months on expectations the Fed would begin cutting down its bond-buying.
India’s rupee was at 61.73 to the US dollar, well up from the record levels above 69.00 seen at the start of the month, while the greenback also fetched 30.96 Thai baht, compared with 32.45 baht a few weeks ago.
The US dollar fell to 1,070 South Korean won, against the 1,150 won level touched over the summer. It also slipped to 11,092 Indonesian rupiah from 11,290 rupiah, although the greenback is still sitting at about four-year highs.
The Fed decision “may foster expectations that capital outflows from [emerging markets] can stop or even reverse,” Barclays Capital said in a note, Dow Jones Newswires reported.
“This should be particularly supportive for the currencies and rates markets of countries with higher current account deficits,” such as India and Indonesia, the note said.