PUBLISHED ONSeptember 09, 2015 1:17 PM
HONG KONG - A wave of confidence swept through Asian markets Wednesday, led by a soaring Tokyo, extending the previous day's broad global advance as China announced policy moves to bolster the economy.
Investors dumped assets considered safe bets and piled into riskier prospects, with the Japanese yen sinking against the dollar and euro, while the Australian dollar recovered from six-year lows and emerging market currencies got much-needed support.
Big gains on stock markets - Tokyo shot up 7.71 per cent - come after weeks of being hammered by concerns about slowing growth in China, whose economy is worth more than 13 per cent of global GDP.
Decades of rapid growth in China have been spurred by huge exports and massive state spending, but commentators say Beijing needs to retool to boost domestic consumption if its economy is to continue to grow.
Fears over the communist authorities' ability to manage this transition have sent wobbles through financial markets around the world, where China has until now been a bright spot on an otherwise gloomy horizon.
Suggestions that Beijing had stepped in to shore up mainland shares on Tuesday sent Shanghai and Hong Kong higher.
An announcement by the country's finance ministry that it would accelerate major construction projects, encourage private capital to invest in key areas and cut taxes for small and medium-sized enterprises to support growth also appeared to be adding to the positive mood, some analysts said.
In another positive move, media reports said that China is preparing to unveil broad reforms for state-owned companies which will see some firms shut and others introduce more diversified ownership.
The initiative, outlined in a purported official document circulating online, addresses concerns that China has slowed reforms while its economy falters and its stock market gyrates.
"The gains in Chinese shares helped calm markets down and investors believe that China will have more fiscal policies, not only monetary, to stabilise the economy," said Thebes Lo, Hong Kong- based vice president at Kim Eng Securities Ltd..
"Risk appetite is back a little bit." Japan's Nikkei led the charge on Wednesday, registering its biggest one-day rise in seven years.
But illustrating the continued volatility, that tub-thumping rise came after a fall on Tuesday that had erased the last of its gains for 2015.
'Aussie' recovers
"The sell-off in Japanese equities has been excessive amid concerns over China's economic slowdown," said Khiem Do, at Baring Asset Management. "Today's rally can be sustained once the market's perception of the Chinese economy improves." Hong Kong ended more than four per cent higher while Shanghai and Sydney closed up more than two per cent. Seoul added almost three per cent and Taipei jumped 3.57 per cent.
Currency markets also saw traders move into assets seen as riskier - the dollar rose to 120.60 yen from 119.82 Tuesday in New York, while the euro was at 134.60 yen from 134.22 yen.
The yen had been climbing in recent weeks as dealers moved into safer investments to protect them from the global market convulsions.
The "Aussie" dollar was at 70.60 US cents against 69.75 cents late Tuesday in Tokyo, well up from the six-year lows around 69.00 cents plumbed at the end of last week Emerging currencies enjoyed a rare advance, with the South Korean won up 0.95 per cent against the greenback, the Indian rupee 0.44 per cent higher and Malaysia's ringgit 0.7 per cent stronger.
However, there remains uncertainty over plans by the US Federal reserve for raising interest rates - something that could cause traders to draw in their horns - with the China crisis muddying the waters for bank policymakers as they prepare for a meeting next week Chris Weston, chief markets strategist in Melbourne at IG, warned of further market ructions if a hike is announced.
"We won't rule out more volatility ahead of the US meeting next week," he added.