Asian Indices Heading for Highest Close in a Month

on Jun 20, 2012
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The regional benchmark index for Asian stocks is heading for its highest close in a month, as the Federal Reserve is expected to introduce stimulus measures and the leaders of the Group of 20 backed measures aimed at overcoming Europe’s debt crisis.

On 20 June 2012, the MSCI Asia Pacific Index (MXAP) rose one percent to 116.96 as of 7:58 p.m. in Tokyo, as reported by Bloomberg. This is the highest close for the MXAP since May 15. Japan’s Nikkei 255 Stock Average (NKY) on the other hand advanced 1.1 percent, whereas South Korea’s Kospi Index and Hong Kong’s Hang Seng Index added 0.7 and 0.5 percent, respectively.

According to Bloomberg, the main factors determining the high performance of Asian stocks are speculations about the prospective measures which the Fed will introduce with the purpose of boosting the US economy, as well as the pledge of the G-20 leaders to support growth and help overcome the spreading European crisis.
!m[](/uploads/story/124/thumbs/pic_1_inline.png)One of the results of the G-20 summit in Mexico, which concluded on 19 June, is the Los Cabos Action Plan for Growth and Employment, establishing “commitments to deal with the Eurozone”. In addition, as noted in the leaders’ declaration, the Euro area members of the G-20 pledged to take “all necessary policy measures to safeguard the integrity and stability of the area”. The likelihood of a pro-bailout government in Greece was the other positive development regarding the situation in the Eurozone, contributing to the positive performance of stocks of Europe-focused companies such as Canon (7751:JP), which rose 1.4 percent to 3,240 yen, as reported by the Financial Times on June 20.

In addition, Bloomberg reported that according to JPMorgan and Jefferies, the Fed was likely to extend its Operation Twist, a programme, which involves selling short-term debt and buying long-term bonds. FT on the other hand quotes Barclays Capital, in whose opinion the Fed will extend Operation Twist with several months since “the market would be disappointed with a lack of more aggressive actions by the Fed”. Another option is introducing another round of quantitative easing, although at present this option seems less likely.

In any case, as a result of Fed action speculations, stocks of Asian companies exporting to the US advanced. Li & Fung Ltd.(494:HK), a Hong Kong-based company supplying toys and clothes to Wal-Mart, gained 1.9 percent to HK$15.76, as reported by Bloomberg.
Sony Corp (6758:JP), which is Japan’s biggest exporter of consumer electronics, rose 3.5 percent after the country’s overseas shipments exceeded expectations. Bloomberg quotes Takao Goto, a market analyst at Japan’s biggest online brokerage SBI Securities Co., who noted that the strong exports were actually led by the automobile sector, Japan’s biggest industry, meaning that the positive influence on the Japanese economy would be large. Toyota Motor Co.(7203:JP), the world’s biggest carmaker by market value, gained 1.2 percent to 3,050 yen. FT reports that Honda Motor (7267:JP) advanced with 1.1 percent to 2,576 yen, whereas Mazda Motors (7261:JP), which had fallen sharply in the past month, jumped the most, gaining 6 percent and reaching 106 yen.

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