Asian stocks rose to a two-month high yesterday and high-yielding currencies advanced on the yen after details of a US plan to rid banks of up to US$1 trillion in toxic assets bolstered confidence in risk taking.
Major European stock market futures rose more than 1 percent, indicating higher openings, while US stock market futures were up 2 percent as a wave of optimism spread.
Still, doubts lingered, with the US housing market showing few signs of bottoming, uncertainty over how the bad debts would be priced and concerns whether more borrowing by over indebted households was the solution to a credit crisis.
“If the US authorities actually succeed in buying up to US$1 trillion of ‘toxic assets,’ it would be considered a significant step by the financial markets. However, the markets will be disappointed if the programs did not move forward due to problems regarding how the assets’ value is measured,” said Mamoru Yamazaki, chief economist with RBS Securities in Tokyo.
The Nikkei share average ended 3.4 percent higher, closing at the highest level since late January as technology stocks soared.
Shares in Japan’s big banks outperformed. Mizuho Financial Group rose 5.3 percent and Mitsubishi UFJ Financial Group, the country’s biggest bank, gained 4.7 percent. MUFG said earlier it would cut 1,000 jobs.
The MSCI index of Asia Pacific stocks outside Japan was up 4 percent, hitting a two-month high, supported mostly by the energy, financial and materials sectors.
Hong Kong’s Hang Seng index rose 3.4 percent, led by a 5.3 percent gain in China Construction Bank (中國建設銀行). Index heavyweight HSBC slipped 2.5 percent as its deeply discounted rights shares began trading yesterday.
Australia’s S&P/ASX 200 Index and South Korea’s Kospi Index both rose 2.4 percent. All markets gained except Vietnam and New Zealand.
The details yesterday took away some of the mystique as to how the US Treasury Department would get that done. However, questions lingered as to whether this plan was the antidote to the monstrous problem that has ultimately sucked the global economy into recession.
“The key to the success of all these initiatives is the ability and willingness of corporations and US households to borrow. Households, especially, are still over-leveraged. The solution to that is to save more out of current income and use the savings to repay debt. But, lower interest rates incentivise borrowings and not savings,” said V. Ananthan-Nageswaren, chief investment officer, Asia Pacific, with Julius Baer in Hong Kong.
For now at least, investors were given the green light to venture back into riskier assets.
Currencies that were sold off heavily during the most violent periods of market volatility performed well. The Australian dollar rose more than 1 percent to around A$0.6980, a two-month high.
Meanwhile, the euro hit a five-month high against the yen, near ¥132, following remarks by European Central Bank president Jean-Claude Trichet underscoring that rates were already at low levels and that the central bank may turn to unconventional measures to shore up the banking system.
The US dollar was trading at NT$29.7 at 10am today on the Taipei Foreign Exchange, as the New Taiwan dollar gained NT$1.364 from the previous close last week. The NT dollar continued to rise today, after surging 3.07 percent on Friday. After opening at NT$30.91, the NT dollar gained more than NT$1 in just 15 minutes, briefly passing the NT$30 mark. Before the US Department of the Treasury's semi-annual currency report came out, expectations that the NT dollar would keep rising were already building. The NT dollar on Friday closed at NT$31.064, up by NT$0.953 — a 3.07 percent single-day gain. Today,
‘SHORT TERM’: The local currency would likely remain strong in the near term, driven by anticipated US trade pressure, capital inflows and expectations of a US Fed rate cut The US dollar is expected to fall below NT$30 in the near term, as traders anticipate increased pressure from Washington for Taiwan to allow the New Taiwan dollar to appreciate, Cathay United Bank (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said. Following a sharp drop in the greenback against the NT dollar on Friday, Lin told the Central News Agency that the local currency is likely to remain strong in the short term, driven in part by market psychology surrounding anticipated US policy pressure. On Friday, the US dollar fell NT$0.953, or 3.07 percent, closing at NT$31.064 — its lowest level since Jan.
The Financial Supervisory Commission (FSC) yesterday met with some of the nation’s largest insurance companies as a skyrocketing New Taiwan dollar piles pressure on their hundreds of billions of dollars in US bond investments. The commission has asked some life insurance firms, among the biggest Asian holders of US debt, to discuss how the rapidly strengthening NT dollar has impacted their operations, people familiar with the matter said. The meeting took place as the NT dollar jumped as much as 5 percent yesterday, its biggest intraday gain in more than three decades. The local currency surged as exporters rushed to
PRESSURE EXPECTED: The appreciation of the NT dollar reflected expectations that Washington would press Taiwan to boost its currency against the US dollar, dealers said Taiwan’s export-oriented semiconductor and auto part manufacturers are expecting their margins to be affected by large foreign exchange losses as the New Taiwan dollar continued to appreciate sharply against the US dollar yesterday. Among major semiconductor manufacturers, ASE Technology Holding Co (日月光), the world’s largest integrated circuit (IC) packaging and testing services provider, said that whenever the NT dollar rises NT$1 against the greenback, its gross margin is cut by about 1.5 percent. The NT dollar traded as strong as NT$29.59 per US dollar before trimming gains to close NT$0.919, or 2.96 percent, higher at NT$30.145 yesterday in Taipei trading
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