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Asia stocks rally on hopes for bank rescues

(Agencies)
Updated: 2008-10-13 15:56

A woman takes note of stock information in front of an electronic screen at a brokerage house in Beijing, October 13, 2008. China's stock market rebounded from early losses on Monday to close sharply higher, led by bank shares after U.S. and European policy makers said they would take fresh steps to try to resolve the financial crisis. [Agencies]

Asian stocks bounced 5 percent from a four-year low on Monday after policymakers around the world took increasingly bold steps to rescue the financial system, including guaranteeing bank desposits and taking stakes in banks.

Hong Kong stocks soared 1,515.29 points, or 10.24 percent, to close at 16,312.16 on Monday. Turnover totaled 72.59 billion HK dollars ($9.32 billion), higher than Friday's 69.37 billion HK dollars ($8.89 billion).

The Chinese mainland stocks recovered from early losses Monday. The benchmark Shanghai Composite Index gained 3.7 percent, or 73.00 points, to 2,073.57. It had dropped 3.4 percent by midday in volatile trading. The Shenzhen Composite Index added 1.9 percent to 541.32.

Weekend news of a European bank rescue plan failed to stir buying enthusiasm in early trading, with property developers and resource firms leading the decline.

But later in the day shares recovered across the board, with banks, insurers and property surging. Although the government does not comment on its market activities, analysts said that major state institutions were behind the rebound.

Shanghai Pudong Development Bank surged by the 10 percent daily limit to 13.53 yuan, while Industrial & Commercial Bank of China, the country's biggest lender, jumped 7.5 percent to 4.30 yuan. China Life Insurance gained 10 percent to 21.80 yuan while smaller rival Ping An Insurance surged 7.9 percent to 29.94 yuan.

Obviously, the regulator wants to stabilize the stock market and protect it from collapsing like others, but it's hard to say how long the rebound will last, analyst said.

Expectations that slower growth resulting from the deepening financial crisis will hurt demand pulled resource shares lower during morning trading. But even those firms showed moderate gains.

Aluminum Corp. of China, or Chinalco, advanced 2.6 percent to 7.49 yuan while China Shenhua Energy rose 3.5 percent to 20.92 yuan.

Oil and gas conglomerate PetroChina, the Shanghai benchmark's heaviest weighted stock, slipped 0.5 percent.

In currency dealings, China's yuan strengthened to 6.8275 to the US dollar in over-the-counter trading around 0700 GMT, up from Friday's close of 6.8359.

Major European stock markets were expected to open as much as 5.3 percent higher, according to financial bookmakers, and US stock futures rose 4.9 percent after the US government said it would inject capital directly into financial institutions, and European leaders hatched a plan that included buying bank debt.

Global equity markets were gutted last week, and investors even liquidated positions in safe havens like government bonds for cash, on dwindling hopes that anything could be done to keep the global economy from sliding into recession.

Japan's stock market plunged 24 percent last week, twice what it lost in the week of the 1987 crash, while US stocks dropped 18 percent, their biggest weekly decline ever.

"Markets are hugely technically oversold and everyone is starved of good news, so it won't take much to trigger a relief rally. But that's unlikely to be the end of the story," said Geoff Lewis, head of investment services for JF Asset Management in Hong Kong.

"Until we see a return of risk appetite, it's difficult to see how Asia can outperform in line with its relatively superior fundamentals," said Lewis, who anticipated more pressure on banks from their consumer and commercial lending arms.

The MSCI index of Asia-Pacific stocks outside Japan climbed 5 percent after slumping by more than a fifth last week to the lowest since December 2004.

Australia's benchmark S&P/ASX 200 index ended 5.6 percent higher, clawing back some of last week's 16 percent decline, on a blanket guarantee of all bank deposits from the Australian government.

Hong Kong's Hang Seng index climbed 3.2 percent after losing 16.2 percent last week. China Mobile shares were the biggest boost to the index, and large bank stocks rallied after dipping earlier in the session.

Japan's markets and the US Treasury market were closed for holidays on Monday.

Value, Caution

Last week's flight from global equity markets hit both developed and developing markets hard, and some money managers cautioned against wading back into emerging market assets.

Jennifer Tay, Asia-Pacific head of portfolio counselling for Citi Private Bank, said she is urging clients to stay invested in defensive sectors like healthcare, utilities and infrastructure.

"For the next few months, anything that is emerging markets oriented, they would have a further beating," she said at a Reuters Wealth Management Summit in Singapore.

Panic last week about the fate of the global financial system also ripped apart credit spreads and sent volatility soaring.

Wall Street's best known fear gauge, the Chicago Board Options Exchange Volatility index (VIX) roared to an all-time high of 76.94, having more than trebled in the last month.

The spread of 3-month London interbank offered rates, used between some large banks, over the 3-month US Treasury bill yield widened to a record 459 basis points, after blowing out 359 bps in the last month. The spread is essential to proper functioning of lending markets as it indicates perceived counterparty risk over a so-called risk-free rate.

The widespread measures announced over the weekend appear to have supported confidence among investors that policymakers will coordinate their efforts to stem the worst financial crisis since The Great Depression.

However, the sort of rapid damage inflicted to the financial system and the radical measures being employed to mend it will likely have deep repercussions.

"A palpable sense of a turn in the markets this morning demands a cautionary warning. There will be consequences for global governments circumventing banks' core disintermediation roles in the credit and cash markets," said Brett Williams, credit analyst with BNP Paribas in Hong Kong in a note.

The yen dipped against the euro as equity markets rallied though it was steady against the US dollar. The euro rose to 136.22 yen after trading at 134.97 yen late in New York on Friday The US dollar slipped a bit to 100.20 yen down from 100.64 yen on Friday.

The price of spot gold rose 1.8 percent to $862.40 an ounce, helped by the weaker US dollar against the euro, after tumbling 7 percent on Friday as investors closed out of positions and stayed on the sidelines.