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.
Japanese Prime Minister Sanae Takaichi has talked up the benefits of a weaker yen in a campaign speech, adopting a tone at odds with her finance ministry, which has refused to rule out any options to counter excessive foreign exchange volatility. Takaichi later softened her stance, saying she did not have a preference for the yen’s direction. “People say the weak yen is bad right now, but for export industries, it’s a major opportunity,” Takaichi said on Saturday at a rally for Liberal Democratic Party candidate Daishiro Yamagiwa in Kanagawa Prefecture ahead of a snap election on Sunday. “Whether it’s selling food or
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