Asian markets relatively higher all eyes on US quantitative easing decision

The Hong Kong stock market rose to its highest level in more than two years today, largely led by banks and energy stocks. The market appears to suggest that a second round of quantitative easing in the US will spur more international funds flow into Hong Kong, seeking to benefit from strong economic growth in China and possible Yuan appreciation.

Cheaper borrowing costs have driven asset prices higher across the globe while China has taken to tightening monetary policy to curb domestic inflationary pressure. China’s capital inflow controls make Hong Kong an attractive proposition to foreign investors. All the mainland banks traded higher today with ICBC (1398.HK) taking the lead, gaining close to 4% in the early trading session. Semiconductor Manufacturing (981.HK) gained 4.55% in the early session after releasing higher than expected quarterly profits.

Singapore’s Strait Times Index closed 0.8% higher at 3,231. The first half trading session was largely led by the industrial and consumer goods sectors. Neptune Orient Lines was in favour today rising as much as 3.7% to a six month high as the market speculation on possible improved. Tiger airways also gained 1.6% today after announcing a S$14.1 million second quarter profit compared with a previous loss of S$2.3 million

The Australian share market (up 21 to 4,722) drifted higher today ahead of the much anticipated announcement of the US Federal Reserve’s stimulus package, or QE2. A strong profit result from Westpac Bank (up 0.5% to $23.42) this morning saw its shares rise at the expense of the three other major banks, as investors rotated back into Westpac. By this afternoon, most had returned to positive territory.

Resource shares moved broadly ahead, as did consumer staples, suggesting both growth-related and defensive investors were buying. Westfield ($12.81) shares remained in suspense after announcing the creation of a $12 billion property trust to hold 54 of their local shopping centres.

Markets volumes are subdued, and are unlikely to improve before the QE2 announcement at 6.15 am Sydney time tomorrow. Having seen markets buy both weak data on the basis of a large stimulus response, and buy strong data on an improving economic scenario, the Fed is now facing a potential lose / lose scenario. If they announce a large stimulus, markets may interpret it as a sign that the US economy is worse than feared. If they announce a modest package, markets may call it “too little, too late.”

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.