Following the Fed’s decision to hike rates, Southeast Asian markets rose heavily only to see them continue their prolonged decline the next day. Stock traders were lulled into a false sense of security as it experienced a hiatus from the current global decline, which later continued.
The 17th of December saw an early rise across all of Southeast Asian stock exchange indexes as the Fed rose interest rates, something the world hasn’t seen for nine years. The move initially seemed to be welcomed as a relief from the global economy which has been on decline from disastrous drops in the price of crude oil. Benchmark interest rates rose from 0.25% to 0.5% with an announcement that there will be more to come in 2016.
Janet Yellen hinted that there might be four separate occasions bringing about quarter-point increases next year. Highly anticipated not only because it was announced so far in advance but also because it has been pushed back a few months, the move is meant to signals confidence in the world economy.
Asian Markets React Positively
In fact, the Feds themselves said during a press conference following the rate hike that the public should “recognize” that the “decision reflected our confidence in the US economy.” They also expressed their delight at the lack of volatility across all asset classes from the increase.
According to analysts, and because of meeting expectations that the rate would increase, Asian markets reacted favorably which resulted in moderate gains in share prices across Asia.
Japan’s Nikkei 225 rose by 2.2%, Korea’s KOSPI and Singapore’s STI by 0.9% and Australia’s ASX 200 ended up 1.8%.
… But Not for Long
Even though the world was given a day’s break from the grueling situation that the global economy is in, it was back to reality the next day as Asian stocks resumed their decline.
As the hype around the Fed’s interest rate hike that signaled confidence in the recovering economy faded away, many investors woke up to re-realize the dire situation with crude oil prices a third of what it used to be and the global economy in crisis.
Even as the Feds seem bristling with confidence, other parts of the world, including some Asian markets, were not in the same shape with growth much weaker in Europe, China, and other parts of the world. Taiwan, for example, unexpected cut its interest rates citing the weakening world economy.
“Global economic performance has been worse than expected recently,” Taiwan’s central bank was reported as saying, justifying why it had lowered rates by 12.5 basis points to 1.625%.
The slower pace of growth for the world’s biggest commodities consumer, China, has brought down the price of oil and consumer goods sending ripples of shock to other economies. Oil is being traded now for under US$40 per barrel.
Japan’s Nikkei 225 fell 0.1%, South Korea’s KOSPI fell 1% and Australia’s ASX 200 0.7%. Singapore’s STI was the only one in the positive – up 0.7%.
Even though low oil prices collaborated with the global economic crisis, analysts believes that any crisis is temporary. OPEC (which is becoming less significant) also believes that the price of crude oil now can go nowhere but up. They reported that by 2020 the oil price would be at US$70 at the lowest, bound to make a slow but surefire recovery in the future.