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Asian Stocks Rally After Surprise Fed Announcement

September 19, 2013 by

HONG KONG — Stock markets across the Asia-Pacific region jumped on Thursday, and many previously battered currencies rose, as investors cheered the news that the U.S. Federal Reserve will not pare back its support of the U.S. economy — at least for now.

The biggest gainers were those that had suffered most from the past months’ exodus of funds from emerging markets. In Indonesia, the region’s worst performer over the past three months, the benchmark stock index had jumped 4.5 percent by midday, and in India, where slowing growth, looming elections and a large current account deficit have helped undermine investor confidence, the Sensex index soared 2.6 percent in early trading.

The relief spread across the entire region, producing gains of more than 3 percent in Thailand and the Philippines, 1.7 percent in Hong Kong, and 1.1 percent for the S.P./ASX 200 index in Australia. In Japan, the Nikkei 225 closed up 1.8 percent.

The markets in mainland China, Taiwan and South Korea were closed for a holiday.

Many of the region’s currencies also rose, with the beleaguered Indonesian rupiah up about 1.5 percent and the currencies of India, Malaysia and Thailand all 2 percent stronger against the U.S. dollar.

European stock markets also were swept higher early on Thursday. The FTSE 100 rose 1.4 percent soon after trading opened in London, and the key indexes in Germany and France both rose 1.2 percent.

“A Fed that is more dovish than expected should be a near-term positive for Asia’s economies,” analysts at Nomura said in a research note on Thursday, as the Fed’s stance should increase net capital inflows, or at least lessen outflows.

Like many other analysts, however, they also cautioned that the Fed’s statement on Wednesday was likely to be only a “short-term positive,” particularly as the timing of a reduction in bond-buying and the sustainability of a recent upswing in China’s economy remained uncertain.

After an initial relief rally over the next few days, “markets will start to fret again about tapering beginning in December. And that won’t be the end of it. Once tapering begins, the next worry will be when asset purchases will end altogether. And then, when rates will rise,” equity strategists at HSBC wrote in a research note. “We see a year or more when equity markets dip (and then recover) each time the Fed moves to (or towards) ending its ultra-easy policy.”

Meanwhile, they added, the delay in the Fed’s “tapering” of its stimulus gives policy makers in Asia a chance to speed up much-needed reforms. “But the risk is that the current surge in equity markets could also bring back complacency.”

Article source: http://www.nytimes.com/2013/09/20/business/global/daily-stock-market-activity.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Its Economy Slowed, India Faces Critical Budget Decisions

February 27, 2013 by Leave a Comment

But on Thursday, when the current finance minister, Palaniappan Chidambaram, arrives in Parliament, his steps will be heavier, and the mood is likely to be, too. Faced with slowing growth, persistent inflation and sagging investor confidence, India’s government is pinned between conflicting pressures: economists warn that tough steps are needed to avoid long-term fiscal problems, even as political leaders are leery of introducing unpopular measures before important elections later this year.

For its part, the government on Wednesday sought to change the pessimistic narrative, as the Finance Ministry released its annual economic survey and projected that economic growth would jump somewhere above 6 percent during the next fiscal year, predicting that the downturn was “more or less over and the economy is looking up.” Some economists were skeptical, given that similar rosy predictions in recent budgets have proved wrong.

“Let me remind you that last year the economic survey spoke of about 7.6 percent projected growth — and what we had was 5 percent growth,” said Ajay Bodke, head of investment strategy and advisory at Prabhudas Lilladher, a Mumbai brokerage. “That is not just a miss but a humongous miss.”

The consequences of the budget plans are especially high because India, once a darling of global investors and an anointed power-in-waiting, is struggling to regain its lost luster.

India’s estimated growth rate for the current fiscal year is 5 percent again, compared with 8 percent in 2010. Ratings agencies have threatened to downgrade the country’s investment rating to “junk” status. Meanwhile, India’s political class has spent more than three years enmeshed in scandals, as a bickering Parliament has accomplished almost nothing.

“It’s a supercritical moment, actually,” said Rajiv Kumar, an economist with the Center for Policy Research, a think tank in New Delhi. “If you get it right, and this is a budget that can shore up the government’s credibility, they can turn it around.”

For investors and business leaders, the question is whether the government will make tough calls to address the country’s large fiscal and account deficits, curb huge subsidies for diesel fuel and petroleum products, unclog bureaucratic bottlenecks on stalled manufacturing, energy and infrastructure projects and create incentives to entice new investment.

Only a year ago, Pranab Mukherjee, then finance minister, unveiled a budget now regarded by many analysts as a major mistake. Desperate to increase revenues, the government spooked investors by giving broad latitude for tax collectors to pursue multinationals for billions of dollars in new, unexpected taxes. Investment slowed markedly, while investors and political opponents complained that India’s coalition government, led by the Indian National Congress Party, was endangering one of the world’s fastest growing economies.

“The economy is in a deep crisis at the moment,” said Yashwant Sinha, a former finance minister with the opposition Bharatiya Janata Party, “and I only hope the crisis doesn’t become any deeper with more pre-election sops.”

Mr. Sinha and many independent economists warn that the economy cannot afford a repeat of 2008, when the government was preparing for national elections the following year. Then, the pre-election budget was filled with big spending measures, including pay raises to government workers and the forgiveness of billions of dollars in loans to farmers. The government was easily re-elected in 2009, but the new spending contributed to a fiscal deficit that rose to roughly 6 percent, from about 2 percent the previous year.

Neha Thirani Bagri contributed from Mumbai.

Article source: http://www.nytimes.com/2013/02/28/world/asia/indias-budget-comes-at-a-time-of-conflicting-fiscal-and-political-pressures.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Pressure Builds on Italy and Spain Over Finances

August 2, 2011 by Leave a Comment

The Italian economy minister, Giulio Tremonti, called a meeting of the country’s financial authorities Tuesday to discuss the recent market turmoil, Reuters reported, citing an unidentified official. The Italian Treasury did not respond to calls seeking comment.

In Madrid, meanwhile, Prime Minister José Luis Rodríguez Zapatero delayed the start of a planned vacation to the southern region of Andalucia. Reuters quoted the secretary of state for communications as saying the prime minister wanted to “more closely monitor the evolution of the economic indicators.”

The lack of investor confidence in both countries is threatening to push their borrowing costs to unsustainable levels and drag the eye of the fiscal storm away from Greece, Portugal and Ireland.

The yield on 10-year benchmark Italian bonds was up 0.12 percentage point, at 6.11 percent, in afternoon trading in Europe, after rising as high as 6.21 percent in the morning, the highest level since November 1997, according to Bloomberg News. That increased the difference in yield, or spread, over equivalent German securities, to 3.71 percentage points, the widest gap — an indicator of risk — since before the euro was introduced in 1999.

Spanish 10-year yields were up 0.09 percentage point, at 6.25 percent, in afternoon trading, after rising as high as 6.39 percent. The spread over the 10-year German bond rose to 3.84 percentage points.

Last Friday, the same day Moody’s Investors Service put Spain on watch for a possible downgrade, citing “funding pressures,” Mr. Zapatero called early general elections for Nov. 20. That raised the prospect of having a lame-duck administration in power until the end of the year.

Chiara Corsa, an Italian economist at UniCredit in Milan, said the meeting Tuesday in Rome appeared to be an emergency response to market volatility. She said she was skeptical about whether it would produce any meaningful steps to address investor concerns.

Prime Minister Silvio Berlusconi is scheduled to address Parliament on Wednesday to discuss the economic situation.

He has been mostly silent in recent weeks as investor sentiment against the country has soured. His administration has appeared divided in the wake of several heavy defeats in local polls.

There have also been doubts about the future of the economy minister, Mr. Tremonti, a budget hardliner who has appeared increasingly estranged from Mr. Berlusconi. Mr. Tremonti also faces the distraction of a corruption investigation into a former aide surrounding the rental of a luxury apartment in Rome.

Ms. Corsa, the economist, said the prime minister was expected to come up with a statement of intent for increasing the country’s growth potential. There has also been speculation that the government might introduce new measures to tax personal wealth as a means of bolstering revenue in the near term.

The volatility might be calmed if the European authorities are able to quickly implement their recent decision to use the European Union’s bailout fund, known as the European Financial Stability Facility, to buy Italian bonds in the secondary market. But it remains unclear how soon that might occur, analysts said.

“Italy doesn’t need a bailout,” Ms. Corsa said. “It has room to sustain these levels of interest rates for some time. But if yields keep rising, the situation will worsen.”

The meeting in Rome was bringing together representatives from the Economy Ministry, the Bank of Italy, the market regulator Consob and the insurance authority, according to Reuters.

In July, the government approved a €48 billion, or $68 billion, package of austerity measures aimed at helping to bring the budget into balance by 2014. But that failed to improve overall sentiment, which is dragged down mainly by the country’s chronically weak growth.

Article source: http://feeds.nytimes.com/click.phdo?i=65ef67aabf23c6e92cac4ba6661ff433

Filed Under: Business News Tagged With: , ,