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World stock markets in new rally
By Our Financial and International Staff
World stock markets yesterday seized on weekend remarks from Alan Greenspan, the US Federal Reserve chairman, to launch another attempt at a rebound, after the severe correction since mid-July.
Asian bourses led the rally with Tokyo gaining 5.3 per cent and Hong Kong 7.9 per cent. European markets then took up the baton. In London, the FTSE 100 index enjoyed its second biggest one-day points rise, jumping 180 to 5,347.
The Fed chairman said at a conference on Friday that the world financial turmoil would have an impact on the US economy and the next move in interest rates was as likely to be down as up.
Although Mr Greenspan's comments were couched in his normal cautious tones, the US money markets are now pricing in a fall in the benchmark Federal Funds rate by the end of the year.
Many observers trace the start of the correction in global stock markets to comments by Mr Greenspan in July about the inflationary threat to the US economy. So his apparent change of heart was leapt on by traders anxious to mark up prices after the headlong decline of recent weeks.
European markets gained 1-2 per cent, with the transnational FTSE Eurotop 300 index gaining 2.3 per cent. Wall Street was closed for the Labor Day holiday.
Asia was helped by the Greenspan comments, but had its own reasons for a revival. Regional governments were active in the markets again, with some politicians implicitly rejecting the free market ethos as they struggled to stabilise their currencies and stock markets.
In Tokyo, the Nikkei 225 average was given a lift by the stronger yen - as the US dollar fell on the talk of rate cuts - but also by some reported buying of blue chips by government institutions.
In Hong Kong, the main driver was the government effort aimed at strengthening the financial system and the currency board. The measures boost liquidity in the money markets. Moves were also made to limit short selling, the practice of selling shares which one does not own in the hope of buying them back at a lower price. By stabilising interest rates and reducing the possibility of speculative attack, the government helped confidence return to the market.
In Malaysia, share prices jumped 22 per cent as Malaysians brought money in from offshore ahead of a month's-end deadline to repatriate all ringgit or have it declared illegal tender.
While some of those repatriating funds moved directly into the equity market, other local investors bought in anticipation of a rush for shares in the face of dropping interest rates, which have been cut since the introduction of controls. Overseas investors are trapped in the market by a rule that prevents them from repatriating the proceeds of share sales for a year.
Analysts said they could not rule out that the rally was supported by government-linked funds and companies buying to prop up the market in an attempt to build support for the capital controls. |
