Asian stocks were set for a record rise and a third straight day of gains today as lower borrowing costs and international efforts to provide liquidity to emerging markets coaxed investors from safe havens like the yen.
Markets in Japan, Hong Kong and South Korea rocketed 10-12 per cent higher, dragging along commodity prices in the wake of the Federal Reserve's cut in rates to the lowest since June 2004, aimed at softening the blow of a potentially deep US recession.
China, Hong Kong, Norway and Taiwan all delivered cuts of their own, and pressure mounted on the Bank of Japan to reduce rates after it meets on Friday.
Major European share markets were expected to open up as much as 2.1 per cent, according to financial bookmakers, with the European Central Bank and the Bank of England expected to lower their own respective interest rates next week.
The avalanche of government measures taken to increase bank liquidity, including $120 billion of currency swap lines opened between the Fed and four developing economies, and global rate cuts have prompted investors to make room in their cash-heavy portfolios for riskier assets. Credit availability and risk taking are essential to the functioning of the financial system.
"Ongoing policy initiatives from global central bankers and policymakers are finally gaining some traction," said Patrick Bennett, Asia foreign exchange and rates strategist with Societe Generale in Hong Kong.
"Despite the welcome responses to policy actions, risk from slower global growth has not been extinguished and still points to potential underperformance for much of Asia," he said in a note.
The MSCI Asia-Pacific ex-Japan stocks index rose 10 per cent, up a third day and on track for the biggest daily gain since the index was started in 1988. The last time the index rose for three straight days was in mid-June, reflecting the relentless selling that has battered shares. The index is still down 54 per cent so far this year.
Investors have snapped up global equities this week on the first sign of improving sentiment, with valuations in some markets at extreme levels. For example, the ratio of prices to book value on Japan's Nikkei share average dropped on Monday to 0.87, the lowest in more than a decade.
The Nikkei rose 10 per cent, recovering from a 26-year low hit on Tuesday. The weaker yen emboldened investors to buy shares of exporters such as Honda Motor and Canon.
Reuters