Asian shares rally on European debt hopes

A man walks past a display board showing the Hang Seng stock market index in Hong Kong on September 27.

Story highlights

  • Asian shares rallied, following sharp gains on Wall Street
  • Lifted on hopes that Europe will take action on debt crisis

Asian shares rallied, following sharp gains on Wall Street, on hopes that policymakers in Europe will take action to resolve the region's worsening debt crisis.

Sentiment improved after European Central Bank officials said on Monday that they were working to increase the size of the region's €400bn rescue fund to shore up ailing European banks, while expectations of a rate cut in the region next month increased.

The MSCI Asia Pacific index jumped 1.5 per cent, its first advance in four days.

"We are seeing a technical rebound after recent heavy sell-offs, amid growing expectations for some European steps for tackling the debt crisis," said Lee Jae-hoon, an analyst at Mirae Asset Securities. "But this looks like a temporary respite as there are still a lot of uncertainties over the Eurozone crisis."

South Korean shares led the region's broad-based rally, with the Kospi Composite jumping 3.4 per cent, following a three-day 11 per cent fall. Consumer electronics in Seoul surged on easing concerns that Europe's debt problems would lead to a global economic recession.

Samsung Electronics, the world's largest technology company by sales, jumped 3 per cent. The company is involved in various patent disputes with Apple, the latest of which is being heard in a court in the Netherlands this week.

LG Electronics surged 3.9 per cent while Hynix Semiconductor, the world's second largest memory chipmaker, climbed 5 per cent after Daewoo Securities raised its stock price target, citing growing demand for smartphones and tablet computers.

Automakers were higher on easing concerns about global growth with Hyundai Motor up 2.8 per cent in Seoul and Subaru-maker Fuji Heavy Industries 3.7 per cent higher in Tokyo.

Japan's Nikkei 225 Stock Average advanced 1.5 per cent.

Financial shares gained ground on hopes that European leaders may find a way to tackle the region's credit crisis. Sumitomo Mitsui Financial Group was up 1.8 per cent and Mitsubishi UFJ Financial Group gained 2 per cent, while National Australia Bank rose 3.5 per cent and Commonwealth Bank of Australia added 2.3 per cent. China Merchants Bank jumped 3.3 per cent, Agricultural Bank of China shot up by 4.6 per cent and China Citic Bank rose 3.4 per cent.

Gains in banking shares drove Hong Kong's Hang Seng index up 2.4 per cent while China's Shanghai Composite index gained 0.6 per cent. Ping An Insurance gained 1.3 per cent on bargain-hunting after a sharp decline on Monday while China Minsheng banking rose 1.4 per cent.

Recently beleaguered commodity producers were buoyed by higher oil and copper prices, pushing Australia's S&P/ASX 200 index 2.5 per cent higher. Iron ore producer Fortescue Metals Group climbed 4.4 per cent while BHP Billiton, the world's largest mining company by market value, advanced 2.3 per cent in Sydney. Japanese oil firm Inpex rose 2 per cent and JX Holdings added 2.1 per cent in Tokyo. Aluminum Corp of China shot up 4.2 per cent, Jiangxi Copper soared 7.8 per cent and Angang Steel jumped 5 per cent.

Shipbuilders and steelmakers were also higher on the improving growth sentiment with Hyundai Heavy Industries climbing 5.1 per cent and Japan Steel Works 2.7 per cent higher. Other exporters also gained ground with Esprit Holdings surging 5.6 per cent and Foxconn International Holdings climbing 5.5 per cent, while Lenovo gained 4 per cent after announcing a notebook computer joint venture with Taiwan's Compal Electronics. Toshiba surged 4.3 per cent and Fanuc gained 1.8 per cent in Tokyo.

In foreign exchange markets, the yen was a touch higher against the US dollar at Y76.30 from Y76.35 late in New York. It was at Y103.05 per euro from Y103.32.

In commodities markets, Brent crude oil rose 0.6 per cent to $104.55 a barrel while US crude gained 0.9 per cent to $80.95. Copper rose 1.2 per cent to $7,356 a tonne. But gold extended losses, slipping 0.4 per cent to around $1,620 an ounce.

On Monday, the S&P 500 stock index in New York added 26 points, or 2.3 per cent, to 1,162, though the index is still some 50 points below its highest level this month.

The move -- which was the S&P's second biggest one-day rally in September -- was driven by defensive "blue-chip" names, with the Dow Jones Industrial Average up 2.5 per cent to 11,043. Smaller growth stocks lagged behind, as the Nasdaq Composite index rose just 1.4 per cent.

On a global basis, the FTSE All-World index was higher by 1.2 per cent, weighed down by a 2.3 per cent slump for the Asia-Pacific region. The FTSE Eurofirst 300 ended higher by 1.8 per cent to 897 points, with recently hammered financials managing to hold on to some of their advance.

The biggest catalyst behind the broadly improved mood was a belief that round-the-clock meetings of European and US economic leaders will result in fresh proposals to engineer a softer landing for troubled eurozone debtor nations such as Greece, whose possible default has been openly spoken of in recent weeks.

CNBC reported that a deal had been reached among eurozone leaders to leverage the €440bn European financial stability facility by allowing it to issue special securities, though that deal was not confirmed by authorities.

The euro responded by reversing losses. It has now added more than 0.5 per cent since Friday's nadir -- representing its lowest level since January. In late New York trading, it was at $1.3514 versus the greenback.

Jim O'Neill, chairman of Goldman Sachs Asset Management, on Monday told clients that "markets are now looking for broader solutions ... with a number of policymakers suggesting that the November G20 will be a major event".

He added: "In the interim, policymakers will have to feed markets with hope as to what might arrive in November, and then not disappoint."

US stocks may have garnered support from news that Warren Buffett's Berkshire Hathaway is instigating a share buy-back programme -- a sign that the "Sage of Omaha" spies value in the market, perhaps.

Haven assets, such as Treasuries and dollars, saw a mild sell-off throughout Monday's session. Yields on US 10-years rose 7 basis points to 1.90 per cent, but still only a dozen or so basis points away from six-decade lows. Bund yields increased 5bp to 1.79 per cent.

Follow the market comments of Jamie Chisholm on Twitter: @FTGlobalMarkets