Continued Surge: Most Asian Equities Extend Gains in Positive Trend!
On Friday, the positive momentum continued as most Asian equities extended gains, while currencies maintained their recent upward trajectory, propelled by optimism stemming from the US Federal Reserve’s dovish policy shift and the anticipation of lower borrowing costs in the coming year.
India’s equities surged 0.7%, gains a new all-time high. South Korean stocks climbed 0.8%, achieving their highest level in nearly three months, while Thai stocks jumped by 1%.
Currencies remained stable, with the dollar hovering close to four-month lows following the Fed’s expected decision to keep interest rates unchanged on Wednesday. The central bank hinted at a potential end to monetary policy tightening, with discussions about rate cuts now coming “into view.”
Market sentiments now suggest a 75% probability of a rate cut by the Fed in March, according to the CME FedWatch tool. Additionally, there are expectations of 150 basis points in rate reductions by December 2024.
Christopher Wong, FX strategist at OCBC, emphasized the positive outlook for Asian currencies, particularly with the Fed’s pivot.
Philippine equities surged gains up to 1%, reaching their highest level since August 10, and were poised for their best week since early July. The peso remained largely unchanged, having gained 0.6% on Thursday, rebounding from a one-month low earlier in the week. It was on track for its most significant weekly decline since late August.
While the Fed anticipates potential rate cuts next year, the Bangko Sentral ng Pilipinas (BSP) affirmed the need for a “sufficiently tight” policy to address inflation. The BSP maintained its benchmark interest rate for the second consecutive meeting on Thursday.
The Taiwanese central bank, while keeping its key interest rate steady on Thursday, signaled a divergence from the Fed’s expected rate cuts next year.
Barclays analysts highlighted that in Asia, several central banks, particularly the BSP and Bank Indonesia (BI), are likely to find comfort in the softer Fed stance.
Market watchers are eagerly awaiting the policy decision from Bank Indonesia next week. The central bank, in a statement last month, indicated its intention to keep the benchmark rate unchanged into 2024 unless significant changes in global dynamics occur.
Barclays analysts predict that BI will maintain its current stance next week, especially given the improved outlook for the IDR, with the rupiah currency last quoted at 15,500 per US dollar after climbing over 1% on Thursday.