Most Asian markets, including Shanghai and Hong Kong, rebounded yesterday, reversing their recent gut-wrenching plunge as investors welcomed a hefty, surprise interest rate cut by the U.S. Federal Reserve to shore up the sagging American economy.
On the mainland, the benchmark Shanghai Composite Index jumped 143.3 points, up 3.1 percent, to close at 4703.05, with 774 out of 909 stocks closing higher. The Shenzhen Component Index surged 5.49 percent to close at 16874.31. Turnover on the two bourses was down 7 percent to 214 billion yuan.
Analysts said bargain investors began to enter the market after the sharp fall of 12 percent in two days.
Orient Securities said in a report yesterday that the sharp fall had reduced the average price-earning ratio of A shares to 31.9 from about 50 just a few weeks ago.
Market sources said the government approved three composite wealth management products yesterday, which were seen as a move to help channel fresh capital into the market.
"It boosted the sentiments of institutional investors, includingmutualfunds," said Zhang Fan, an analyst at Changjiang Securities.
In Hong Kong, stocks booked the largest single-day gain yesterday, shrugging off the significant losses. But economists cautioned the surge might only be a temporary knee-jerk reaction of optimism.
The Hang Seng Index skyrocketed almost 11 percent to close at 24090 yesterday, recovering everything it lost from Tuesday's crash to become the largest winner in the entire Asia-Pacific region.
"Although I believe today's surge is just an immediate reflex to US' rate cut last night," Sun Hung Kai Financial strategist Castor Pang said, "the prevalent investor sentiment is a lot better."
Pang said the rebound is reasonable given Hong Kong's strong economic fundamentals, but whether the effect of the US rate cut on the Hong Kong market will persist remains to be seen.
But analysts agreed the local property market will receive a strong dose of adrenaline, sending asset prices up. DBS senior investment strategist Daniel Chan said the US interest rate cut will make Hong Kong's negative real interest rate worse. Because of Hong Kong's peg to the US dollar, major local banks followed the Fed to roll back interest rate by 75 basis points.
First Shanghai Securities strategist Linus Yip Sheung-chi said many worry the Fed's rush to cut rates before its scheduled Open Market Committee next Wednesday smelled of panic. "A lot of people don't know whether they should be happy about the cut, or be worried about it."
Tsuyoshi Segawa, strategist at Shinko Securities Co in Tokyo, echoed this view. "The Fed's action provided a very positive surprise," said Segawa. "But people are also starting to think that things may be so bad they needed to act."
Japan's Nikkei 225 rose 2 percent to close at 12829.06 after tumbling 9.3 percent in the previous two days, while India's Sensex climbed 5.2 percent, recapturing nearly half of its 12 percent loss from Monday and Tuesday. Australia's market rebounded 4.4 percent, ending a 12-day losing streak.
Analysts warned thatlowerinterestrateswon't fix the credit problems and they usually take several months to have an effect on an economy.
"We consider the Fed's rate cut still insufficient for the global financial markets to completely recover and help the Japanese stocks to fully rebound," Credit Suisse chief strategist Shinichi Ichikawa said.
Market watchers expect that Asian exports will suffer. In a research report, Credit Suisse analyst Tao Dong said given the increasingly dysfunctional banking system in the US, there is a huge possibility of the world's largest economy to head straight into recession despite the interest rate cut.
He said the robust domestic demand of Asian economies will likely pare off some of the negative impact as US consumers tighten their wallets, but inflationary pressures and currency appreciation will continue to be acute in emerging economies, especially the mainland.
(Source: China Daily/Agencies)