Asian stocks rise as economic optimism fuels global stocks rally

Pedestrians reflected on an electronic stock board at a securities company in Tokyo on May 25.
Pedestrians reflected on an electronic stock board at a securities company in Tokyo on May 25.PHOTO: AFP

TOKYO (BLOOMBERG) - Asian stocks rose on Thursday (May 26), sending the regional equities benchmark gauge towards the biggest two-day gain in more than a month, as optimism the US economy is strong enough for increased interest rates fuelled a global equity rally.

The MSCI Asia Pacific Index climbed 0.7 per cent to 127.62 as of 9.05am in Tokyo, after a global rally sent US equities to the highest level in almost a month. The gauge jumped 1.5 per cent on Wednesday, the most since April 19, as stocks rebounded from a seven-week low.

Japan's Topix index climbed 1.1 per cent, with exporters gaining as the yen traded at 110.05 per US dollar. The gauge has advanced 2.3 per cent over the past two sessions.

Australia's S&P/ASX 200 Index added 0.4 per cent while South Korea's Kospi index increased 0.3 per cent.

"Markets are now more accepting of a US rate increase," said Mr Mitsushige Akino, a Tokyo-based executive officer at Ichiyoshi Asset Management Co. "The thought is that an increase won't stop the US economy from growing, but if the global economy slows, they have the means to change their policy."

Hawkish commentary from Fed officials on the back of last week's policy meeting minutes, along with improving economic figures, led to speculation the central bank may increase rates soon. Odds for a Federal Reserve rate hike in June rose to 34 per cent from 4 per cent last Monday, with traders now expecting a better-than-even chance of an increase by July. Fed chair Janet Yellen is scheduled to speak at Harvard on Friday, after the closure of Asian and European markets.

Asian equities are bouncing back after dropping 6.8 per cent from an April high through Tuesday. Investors have been whipsawed this year, with the regional gauge slumping 14 per cent through a February low on concern a devaluation of the Chinese yuan would curb global growth and amid prospects for higher US borrowing costs. It then rallied almost 20 per cent through this year's peak in April before retreating again.

Increasing conviction that the Fed will boost rates in the next two months has sent the US dollar higher against the yen, helping Japanese stocks.

Futures on Hong Kong's Hang Seng Index rose 0.4 per cent and contracts on the Hang Seng China Enterprises Index climbed 0.3 per cent, after the gauge soared 2.8 per cent on Wednesday, the most in six weeks. The Shanghai Composite Index fell 0.2 per cent, the only major gauge in the region to decline.

Futures on the S&P 500 were little changed after the underlying gauge added 0.7 per cent on Wednesday to the highest level since April 27. The index notched up a set of consecutive advances after seven sessions of swinging from gains to losses.

Crude oil neared US$50 a barrel after a government report showed that US crude inventories and production declined, easing concern over a global glut in the commodity.