Hong Kong: Asian stocks rebounded in late trade after a drop earlier Wednesday on news that Bank of America Corp., or BoA, needs $34 billion (Rs1.68 trillion) in extra capital that startled investors who had grown more comfortable with risk ahead of official results of stress tests on US banks due on Thursday.
US S&P 500 futures were down, indicating a lower market open later on Wall Street, after an official familiar with the government tests on 19 banks told Reuters that BoA needed additional capital worth nearly half its market capitalization of $69.4 billion.
The yen strengthened across the board as dealers sought its relative safety, knocking the Australian dollar down 1.3% against the yen despite stronger-than-expected Australian retail sales numbers.
“This could put a dent in the rally we’ve seen,” said Jan Lambregts, head of Asia research at Rabobank in Hong Kong.
“Definitely, we’ll have a breather until we get these (stress test) results. Perhaps there are a few surprises in there,” Lambregts said.
Still, the fallout from the BoA news was limited by optimism about the global economy, particularly after several US Federal Reserve officials this week, including chairman Ben Bernanke, said the US recession should end this year.
The MSCI index of Asia-Pacific stocks outside Japan was down for much of the day before rising about 0.8% on the back of sharp gains in Hong Kong, Taiwan and Singapore.
The regional gauge had lost more than 1% before setting yet another seven-month high for the third straight day.
Japan’s markets were closed for the last of the three-day Golden Week holidays.
Hong Kong shares rose 2.5% to close at a seven-month high, led by financial stocks.
HSBC Holdings Plc. shrugged off concern about US bank stress tests to jump 6.3% and finish at a three-month closing high after a brokerage house upgraded the stock. Standard Chartered Plc.’s stellar first-quarter performance also lifted sentiment.
HSBC shares have more than doubled in value since their brutal sell-off early in March after Britain’s largest lender made a massive cash call to shore up its balance sheet.
Singapore stocks were the best performing in the region with a 5.1% jump, led by sharp gains in the city state’s No. 2 and No. 3 banks United Overseas Bank Ltd and Oversea-Chinese Banking Corp. Ltd, both posting smaller-than-expected quarterly profit drops.
Taiwan stocks rose 2.9% to an eight-month closing high, as expectations over an influx of Chinese investment continued to boost financial and auto shares. Chinese stocks rose 1%, marking a fifth consecutive day of gains.
Indian stocks lost ground to profit-taking with a 1.5% drop after recent sharp gains and on political uncertainties ahead of general election results.
South Korean shares ended 0.3% lower after hitting a fresh seven-month high earlier in the session, with exporters sinking on the won’s recent sharp gains, but steel makers advanced on hopes for China’s economy.
Australian stocks fell 0.6%, reversing early gains as the BoA headlines sparked fresh financial sector worries. BoA has been at the top of the list of banks believed to need more cash to survive credit losses. The $34 billion number caught many dealers off guard because it triples the previously published reports of the firm’s capital needs.
Investor willingness to take risks in search for higher returns has been increasing over the last few months in response to evidence around the world the global economic downturn is easing. Signs that China’s manufacturing sector is revving up have spurred hopes of a revival among Asia’s other exporters, and the downturn in the US housing market may have stabilized.
Greater acceptance of risk has prompted a rally in equities, commodities, emerging market debt and high-yielding currencies. Uncertainty over the stress test results may put the climb on pause, but was unlikely to reverse it, analysts said.
“In the short term, fundamentally, a correction is overdue and US bank stress test results could well become a trigger as they will reveal capital needs without any real immediate remedy,” said Dariusz Kowalczyk, chief investment strategist with SJS Markets in Hong Kong.
“However, market positioning is likely to trump fundamentals, and it seems real money is coming out of the trenches,” he said in a note.
The US dollar was down about 0.7% against the yen to 98.22 yen, but was higher against the euro and emerging Asian currencies, benefiting from a rush to liquidity.
The euro was down around 0.3% to $1.33, ahead of a European Central Bank (ECB) policy meeting on Thursday at which ECB is expected to cut rates to 1%.
High-grade credit spreads in Asia widened slightly on the BoA news, though they remained near the tightest levels since October, the Asia iTraxx investment-grade index showed.
Indeed, though traders were having to deal with leaks on the bank stress test results in the near term, investors with a longer time horizon were probably comforted by signs the financial crisis was easing.
For example, the VIX Index, a standard gauge of financial market volatility, fell on Tuesday to its lowest since late September. And the three-month London interbank offered rate, or Libor, fell below 1% for the first time after spiking to as high as 4.8% in the wake of the collapse of Lehman Brothers Holdings Inc. last year.
Oil held above $54 a barrel, supported by news of an unexpected fall in US crude and petrol stocks, but gains were limited by persistent uncertainty about any economic recovery.