The equity markets had a double boost last week thanks to Federal Reserve's QE3 (quantitative easing part 3). The Fed will start by buying $45bn worth of long term Treasury bonds and up to $40bn worth or mortgage backed securities each month till labour markets improve. The smarter move by the Fed this time is that its a continuous monthly action, and will continue basically till labour markets improve, i.e. drop in unemployment. These actions will go a long way to restarting a new uptrend for global equities. The combined $85bn buying will keep interest rates low for sometime still thus forcing more funds to seek out higher returns, e.g. moving into equities.
An equally important development was the weakening of the yen, which
looked like the start of a sustained weakness in the yen. This has
started a rush for Japanese exporters by investors. Following the QE3,
it appears investors see no more need to hold the yen as a safety haven.
That being the case, the Japanese economy badly needs the yen to weaken
even more. Hence its a timely boost for Japanese equities as well.
The ringgit opened firmer against the greenback in early trade today
following improved sentiment for risk appetite across the region,
dealers said. At 9.23 am, the ringgit was quoted at 3.0500/0520 compared
with yesterday's close of 3.0520/0540. The increased risk appetite was
boosted by the US Federal Reserve, which in turn will benefit globally
as the move will see more money being pumped into the world's largest
economy. After a two-day meeting which ended yesterday, the central bank
announced new stimulus, which, among others, will see interest rate
decisions tied to unemployment rate and inflation. It would also keep
short-term interest rates close to zero until the unemployment rate,
currently at 7.7 per cent, dips to 6.5 per cent.
Previously, the US
Federal Reserve had said that interest rates would hover near zero until
at least mid-2015. Besides, the central bank decided to introduce a
replacement for Operation Twist, the expiring programme introduced last
year of swapping short-term Treasuries for longer-dated ones.
Previously, the goal of Operation Twist was to lower long-term interest
rates to stimulate the US economy. This new asset purchase programme has
been dubbed as quantitative easing four (QE4). With QE3 and QE4
together, the central bank will likely purchase US$85 billion a month of
Treasury securities, stacking the Fed's portfolio with
government-backed investments for an extended period.
On the local
front, the ringgit was mostly higher against other major currencies. The
local currency rose against the Singapore dollar to 2.4980/5012
compared to 2.4984/5010 yesterday and appreciated against the Japanese
yen to 3.6571/6612 compared to 3.6810/6856 Wednesday. It gained against
the British pound to 4.9190/9229 compared to 4.9214/9256 on Wednesday
but declined against the euro to 3.9839/9874 from 3.9713/9749
The Starbiz had the headline as "higher risk appetite for ringgit", well, not really, its the start of a huge inflow of foreign funds. Thanks to the above factors, a lot of fresh
funds have jumped into mainly indexed local stocks over the last few
days. Many indexed stocks have just surged past their 52 weeks high or
close to it: UMW, SK Petro, and most of the banks. The buying has been
ferocious in local telco stocks. Generally the second liners and
speculative stocks will take a backseat when the index stocks are
surging. Once the indexed stocks have stabilised, you should see strong
rotational plays in second and third liners.