Biodun.BBC: Asia's investors cheer the Fed's move to raise rates

Thursday, December 17, 2015

Asia's investors cheer the Fed's move to raise rates

by Xian Wan and Biodun Iginla, BBC News Analysts, Beijing

From the section Business

Asian markets have risen after the US Federal Reserve raised interest rates for the first time since June 2006.

The Fed increased the range for its benchmark interest rate to between 0.25% and 0.5%, from the previous range of 0%-0.25%.
All major Asian stock markets were higher as the Fed said the US economy was "performing well".
Japan's benchmark Nikkei 225 share index closed 303.65 points higher, or 1.6%, at 19,353.56.
The dollar strengthened against the yen to 122.57 from 122.26 a day earlier, although it then fell back to 122.28 yen. A weaker yen is good for Japan's big exporters.
In Australia, the S&P/ASX 200 index finished the day up 1.5% at 5,102.01, while in South Korea, the Kospi index closed 0.4% higher at 1,977.96.
The Fed's decision to raise rates had been widely expected and analysts said it indicated a degree of optimism for the world's biggest economy.
"The move signals confidence in the ongoing recovery in the US economy after the great financial crisis," said Shane Oliver, head of investment strategy and chief economist at AMP Capital in Sydney.
"Given ongoing deflationary risks and slow global growth, future Fed hikes are likely to be cautious and gradual.
"With the Fed decision out of the way, global shares are likely to resume their rising trend but with US shares as a relative underperformer."

Federal Reserve board chairwoman Janet Yellen — Image caption Fed chair Janet Yellen said the US economy was performing well

The Australian dollar initially fell against the US dollar, but recovered later to buy 72.12 US cents. Australia is hoping to see its currency weaken against the dollar in the coming months.
Mr Oliver said rising US interest rates would help maintain downwards pressure on the value of the Australian dollar through 2016.

Christmas cheer

Analysts said the fact that the Fed was able to increase rates meant the US economy was finally in a position to withstand the move.
"The question for many investors now is whether this momentum in equity markets is likely to develop into a full blown 'Santa Rally' through to the end of the year," said IG Markets' Angus Nicholls.
"With little further market-moving releases expected over the coming weeks and a still dovish trajectory for future Fed policy there does seem to be a good chance of this happening," he added.
"It is worth noting that historically 16 December has been the seasonal beginning of a 'Santa Rally', so its timing with the Fed meeting does seem particularly auspicious to bring some Christmas cheer to those with equity portfolio holdings."

In China

China markets — Image caption In China, when stocks are positive, they are shown in red - unlike most markets which show them as green

China's markets were also in positive territory on Thursday, with Hong Kong's Hang Seng index up 0.53% at 21,820.16 afternoon trade. The Shanghai Composite index closed up 1.8% at 3,580.00.
Beijing also let the yuan slide for the 10th session in a row, to a level not seen since mid 2011.
Earlier on Thursday, Hong Kong's central bank raised the base rate it charges through its overnight discount window by 25 basis points to 0.75 points.
"This is a move that is likely to affect property prices - it will become more expensive for home owners to borrow - and comes after the US Fed's move overnight," the BBC's Asia business correspondent Karishma Vaswani explained.
Other central bank decisions on Thursday will come from the Philippines and Indonesia - though analysts are not expecting them to move rates.
"They're caught in a dilemma of facing slower growth - so they need to cut rates - but can't do that too aggressively because their currencies will weaken," Ms Vaswani said.