Asian stocks charged higher yesterday for a second day, led by a blistering 7.7 per cent surge in Tokyo shares, their biggest one-day gain since 2008.
The spirited rally, aided by hefty gains in Europe and Wall Street, is being fuelled by signs that Beijing is ready to unveil fresh stimulus for the slowing Chinese economy - and weekend comments by officials that the mainland stock rout is almost over.
Hong Kong jumped 4.1 per cent; Shanghai gained 2.3 per cent and Shenzhen surged 3.3 per cent. The Straits Times Index rose 1.5 per cent, Malaysia put on 1 per cent and Thailand was up 1.3 per cent.
The spectacular rally in Tokyo's Nikkei-225 was driven by Prime Minister Shinzo Abe's statement that the government aims to lower the corporate tax rate by 3.3 percentage points over two years starting next April. Share purchases by hedge funds to cover short positions were also a factor.
The sizzling rebound in global equities helped stabilise oil prices, and spurred demand for Asian currencies, particularly those of Malaysia and Indonesia.
Higher commodity prices helped lift the ringgit and rupiah off 17-year lows. The ringgit recovered to 4.3027 yesterday against the greenback, but slid to fresh lows against the Singdollar at 3.0590.
Helping improve sentiment are plans by China's Finance Ministry to ramp up fiscal policy, boost infrastructure spending, remove fees and speed up tax reform.
In its transition to a consumption-based economy, China is studying reform plans for a resource tax and personal income tax.
While the latest Chinese trade data suggests that growth momentum remains soft, Nomura Global Markets Research expects more fiscal stimulus in the second half of the year to boost infrastructure investment. It also expects one more cut soon in banks' required reserve ratio and possible liquidity injections.
Citi Research analyst Willem Buiter said fiscal policy could help prevent a China recession.
But he said spending on infrastructure "with dubious financial and social returns", for instance, was not needed.
The best option would "be for Beijing to issue bonds to fund the fiscal stimulus and for the central bank to buy them and either hold them forever or cancel them, with the central bank monetising these treasury bond purchases".