Asia stocks rebounded sharply on Thursday after weeks of uncertainty as Wall Street helped sooth investors’ edgy nerves. Global markets showed signs of regaining their footing after an extended rout fueled by growth concerns.
All of this would not have been possible if a key Federal Reserve official had not hinted that, considering the recent market turmoil, a September rate increase by the US had become less likely.
The president of the New York Fed released to the press that the case for a rate increase in September had become “less compelling.” He made it clear that he still would like to see the implementation of the first rate hike later this year, but declared that the bank was painstakingly monitoring events in global markets.
Stock markets worldwide had been on the fall as a slump in the Shanghai Stock Exchange (SHA:000001) fueled anxiety over China’s economic health. However, investors were given relief as calm returned after China rolled out strong policy easing steps on late Tuesday.
In fact, giant Asian markets such as Japan and South Korea saw a sharp rise on Wednesday while even the US stock market had the biggest one-day gain in over four years.
The following are the quantified shift in the stock markets. The Dow Jones Industrial Average was up by 4% and the S&P 500 increased by 3.9%. MSCI’s broadest index of Asia-Pacific shares outside Japan rose by 0.4%, just a week after going through a rough patch in which it fell to a three-year low.
Tokyo’s Nikkei Index was up by 2%, adding to the previous day’s 3.2% gain. South Korea’s Kospi advanced 0.7%, proportionally with the Australian stocks.
The only region that was still in turmoil was the EU. Investors still had doubts about the European market and shares. The FTSEurofirst 300 was still on the fall, sliding 2% overnight, as the region remains relatively sensitive to China’s economic health.
China’s Stock Crisis
Yet, the biggest factor contributing to investors’ worries is undoubtedly Chinese stocks. Being the epicenter of the recent financial market tremors, Chinese markets ended lower than before on Wednesday even after the People’s Bank of China (PBOC) agreed to cut the benchmark bank lending rate and loosen reserve requirements for large banks.
This recent drop in China’s financial market and uncertainties that China may allow the value of its Yuan to depreciate even more are forces that are hindering the recovery of assets across Asia and beyond.
The timing of the decisions of the PBOC also sparked doubts about the management of the economy. As one market analyst at CMC Markets wrote, “Rather than getting ahead of the game with a well thought out pan for stabilizing the economy, the PBOC appears to be reluctantly easing policy anytime there’s a drop in share prices. The net effect is that market clamor for more stimulus while at the same time losing faith it will actually work.”
Even in the wake of continued drops in some markets, this looks to be the turning point for the majority of the markets around the world.
What does this mean for Asia?
2015 is not 1997. Even though, there are unsettling similarities between 1997, when Thailand’s devaluation started a crisis that engulfed all of Asia and eventually spread to Russia and America, and the present time, when China’s devaluation has shocked the world’s currencies, stocks, and bonds, the world market is more prepared to stop history from repeating. So far, it seems that a lot has changed for the better.
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