World shares and global bond prices surged yesterday and the dollar fell after the US Federal Reserve stunned markets by choosing to delay plans to cut back its asset-buying programme.
From London to Tokyo and Istanbul to Jakarta, investors celebrated the prospect of continued stimulus in the world’s largest economy, even though the reasons behind it were concerns about the strength of US recovery.
London’s benchmark FTSE 100 index of top companies climbed 1.44 per cent, Frankfurt’s DAX 30 gained 1.16 per cent to push further into record territory and the CAC 40 in Paris rose 1.15 per cent to levels last reached only before the global financial crisis began.
The European single currency raced to US$1.3569 – the highest level since early February. It later stood at $1.3561 in late-morning trade, up from $1.3516 late in New York on Wednesday.
Gold was not to be left behind, hitting a one-week high as the dollar fell.
US gold futures for December delivery jumped 4.5 per cent, or $58.30 an ounce to $1,366.
The gains in Europe followed an Asian rally led by under-pressure developing economies, which breathed a sigh of relief after suffering a heavy sell-off last month as investors bet on the Fed tightening its monetary policy.
Manila jumped 2.81 per cent, Jakarta 5.05 per cent, Mumbai 3.33 per cent and Bangkok 3.66 per cent in value.
In Tokyo, the Nikkei rose 1.80 per cent. Hong Kong added 1.67 per cent and Sydney rallied 1.10 per cent to finish at a five-year high.
The Fed’s policy is expected to keep funds flowing into the high-yielding markets where investors have been putting the cheap Fed cash.
Emerging economies had suffered a huge outflow of cash since Ben Bernanke, the Fed chairman, hinted in May that the Fed would begin tapering its bond-buying scheme, which had led to a spurt of investment abroad in search of higher returns than in the United States.
“We can assume this rally is going to last for some time, probably at least a few weeks,” said Murat Toprak, the emerging FX strategist at HSBC. “There is a reassessment by the market of monetary policy changes going forward.”
Capital Economics, the macroeconomic research firm, warned that the Fed’s decision “not to taper its asset purchases just yet provides some breathing room for the more troubled emerging economies”.
“But their structural problems remain and uncertainty about the outlook for Fed policy has arguably now increased, along with the prospect of further market volatility over coming months. Some EM policymakers may be sighing in relief, but they have been granted only a temporary reprieve, Capital Economics added.
Even in the UAE and the region share prices rose yesterday.
“We saw an equities rebound that corresponded with a rebound by US, international markets, and in Asia. It’s a sentiment reaction,” said Mohammed Ali Yasin, the managing director at National Bank of Abu Dhabi’s brokerage arm.
Property and construction stocks led the gains in the emirates of Abu Dhabi and Dubai.
Union Properties was the top traded stock by value. More than Dh170 million changed hands, helping to lift the shares by 4.9 per cent to 81 fils each. Shares of Arabtec Holding gained 2.4 per cent to Dh2.51 each. Emaar Properties, the developer behind the world’s tallest skyscraper Burj Khalifa, rose 2 per cent to Dh5.86.
Dubai’s main equity index rose 2.1 per cent to 2666.14 points.
At the close, the index ended 0.9 per cent higher at 3,805.42.
“I think the long-term analysis from last night’s statements, what it really tells us, that growth is slower than was expected before and the rise in interest rates will take longer,” Mr Yasin said.
“This will really give equity markets more room to grow, because investors in the Gulf always compare the returns of their investments to the return of their deposits,” Mr Yasin said. “So maybe if interest rates remain weak, they will be happy on yields of stock markets of 3.5 per cent, which means there is good room for the current share prices to grow as companies are expected to generate more profits and distribute more in the coming years.”
On Wednesday, the Fed predicted that the US economy would grow just 2 per cent to 2.3 per cent this year, down from its previous forecast in June of 2.3 per cent to 2.6 per cent growth.
Next year’s economic growth would be a barely healthy 3 per cent, it predicted.
* with agencies