Hong Kong: Asian stocks and commodities rose on Thursday after the Federal Reserve said the ailing US economy was showing signs of “leveling out”, spurring investors to buy back shares and other riskier assets and sell US dollars.
Commodity bulls pushed oil prices further above $70 a barrel and lifted copper prices to a 10-month high, hoping for sustained demand for raw materials.
Longer maturity US Treasury yields were stable after climbing overnight on disappointment that the Fed said it would slowly wind down its government bond purchasing program by the end of October, leaving dealers to wonder how the market would absorb heavy upcoming supply.
Though Asian stocks gained across the board on Thursday, they are still largely unchanged so far in August and investors were still uncertain what would support equities beyond bullish sentiment.
“Market sentiment has warmed up but it is not as if investors are gung-ho bullish. They are still a bit jittery,” said Junichi Misawa, senior fund manager at STB Asset Management in Tokyo.
“Stocks appear to be overvalued considering the current level of corporate earnings but I believe that sentiment as it is right now is indicative of a long-lasting run-up.”
The more positive Fed comments on the economy pushed key US stock indexes up more than 1% overnight, though shares lost steam near the end of the session.
The MSCI index of Asia Pacific shares traded outside Japan rose 1.7%, with the biggest gains spread out across sectors, including financials, technology and consumer discretionary shares.
The index has been choppy in recent weeks but is up 72% since 9 March, when a global equity rally began.
Japan’s Nikkei share average edged up 0.6%, driven by a variety of big auto exporters and tech names.
Battery maker GS Yuasa and industrial name Kawasaki Heavy were among the most heavily traded stocks in the morning session.
Hong Kong’s Hang Seng index rose 2.3%, leading the region. Shares of Tencent Holdings, operator of China’s biggest instant messaging platform, were up 8% after the company said late on Wednesday net profit surged 85 percent in the second quarter.
However, shares in Shanghai slid 0.6%, adding to a 4.7% tumble on Wednesday on worries the market surge has outrun China’s economic recovery.
Bulls in Asia
Asia ex-Japan markets were still expected to outperform, despite increasingly expensive valuations, as capital continued to flow into the region amid growing belief that the global economy had turned the corner.
Of the 17 additions that MSCI Inc made to its global equity indices on Wednesday, 11 of the stocks were in Asia, including five traded in Hong Kong.
The Australian dollar rose along with regional equities, though the shaky start in Shanghai made dealers reluctant to heap more bets on the currency.
The Australian dollar was up 0.2% to US$0.8346 with a recent high of $0.8370 likely to keep a lid on the currency in the near term unless global equity momentum really gets going.
The US dollar weakened across the board, suggesting the inverse relationship between equities and the dollar was holding up despite softening a bit after the July US payrolls number on Friday led to increased bets on higher US interest rates.
The euro edged up 0.1% to $1.4220 while the US dollar fell 0.2% to ¥95.92.
The yield on the benchmark 10-year US Treasury note was 3.71%, relatively unchanged from late on Wednesday in New York. The 30-year yield edged down 1 basis point to 4.52% after climbing 9 basis points overnight.
“The wildcard will now be todays final leg of the three-part auction -- namely the sale of $15 billion of 30-year bonds where indirect bidder participation could be a significant swing factor,” Standard Chartered strategists said in a note.
The premium of the 10-year yield over the 2-year yield, otherwise known as the yield curve, was at 255 basis points, still lower than 275 basis points reached in late May.
Copper traded in Shanghai was up 3.7% in early trade after three-month copper traded on the London Metal Exchange hit the highest since 1 October, at $6,285 a tonne on enthusiasm about the Federal Reserve’s characterisation of the economy.