Hong Kong: Asian stocks jumped 4% on Monday on renewed hopes for a bailout of the US automaker industry, improving risk-taking across markets and weighing on the US dollar and Treasuries.
Investors have been funnelling capital back to emerging Asia for the last few weeks and word the White House was considering using some of $700 billion meant to rescue financial institutions for the struggling car manufacturers extended the trend.
Meanwhile, worsening US economic data, a rapidly growing fiscal deficit and the likelihood the Federal Reserve will cut interest rates again this week all combined to push the dollar to a two-month low against the euro.
“The tide seems to have turned around in recent sessions, with bad US economic news now rightfully hurting the US dollar rather than helping it stronger,” said Nizam Idris, currency strategist with UBS in Singapore.
Oil meanwhile bounced back $1 to trade above $47 a barrel on signs that Opec members are set to make a deep supply cut when they meet later this week, in a bid to prop up prices.
The MSCI index of Asia-Pacific stocks outside Japan rose 4% on the day and is up about 7% so far in December, trying to pull off its first monthly increase since April.
The main attraction in the region throughout this tough year has been China’s high growth economy, even though the last few months have seen a severe slowdown. China-related stock funds have drawn a net $1.48 billion in capital so far this year, the only broad category tracked by Nomura to register inflows.
Japan’s Nikkei share average rallied 4.8%, up for four of the last five days. Shares of Honda Motor Corp were up 7.8%, one of the biggest lifts to the index.
The risk of further declines based on earnings downgrades has been clearly outweighed by the cheapness of stocks at the moment. Toyota Motor Co stock is up 7.4 percent even after Japanese media reported the world’s top automaker is likely to further cut its earnings forecasts and report an operating loss of $1.1 billion in the October-March period.
Hong Kong’s Hang Seng index rose 3.75%, led by HSBC and China Mobile. The one dark blot in Hong Kong was Bank of China (Hong Kong) Ltd, which fell 4.5% after the company warned on Friday its 2008 net profits could fall “considerably.”
The White House indicated last week it is open to using part of the bank bailout package for the Big Three car companies - Chrysler LLC, Ford Motor Co and General Motors Corp. A bill that would have provided $14 billion in loans for the firms failed in the Senate on Friday.