Asian Stocks Surge On US Rate Cut, STI At 2-Month High

Sep 19, 2007

Asian stocks surged on Wednesday, with Singapore shares posting their best one-day gain in a month, as a bold US interest rate cut powered blue chips such as the region's top telecom SingTel and lender DBS.

Investors said the US Federal Reserve interest rate cut overnight by half a percentage point to 4.75 per cent allayed their fears about a sharp slowdown in the US economy, Asia's largest export market.

'It's really a relief that the US Fed is focusing on the economy rather than inflation,' said Khiem Do, who manages more than US$400 million (S$606.7 million) at Baring Asset Management in Hong Kong.

'At least the fear of a US recession has diminished for now,' he said.

Investors expect the lower US interest rates to prompt Asian central banks to cut rates as well. Central banks in the Philippines and Indonesia said on Wednesday there was room for more rate cuts.

Singapore's key Straits Times Index jumped 3.4 per cent - its biggest one-day rise in percentage terms since Aug 20 - to a 2-month high.

As of Wednesday's close, the index is 2.6 per cent below its record high of 3,688.58 points hit on July 16.

Asian shares

Elsewhere, the Indonesian stock index jumped 3.3 percent to its highest level since Aug 1, Malaysian shares added 1.6 per cent, and Thai shares were up 1.2 per cent by 5.37pm Singapore time.

The Philippines' key index climbed 2.2 per cent, and the Vietnam stock market rose 1.2 per cent.

In Singapore, blue-chip stocks led gains. SingTel, South-East Asia's largest telecom, jumped 4.2 per cent to S$3.98, a level last seen in June 1996. Keppel Corp , the world's top rig builder, climbed 4.5 per cent.

Oil prices climbed over $82 a barrel on Wednesday, near a record reached a day earlier.

Shares in property developers and banks - which stand to benefit from lower interest rates thanks to stronger demand for real estate and loans - rose too.

South-east Asia's top two property developers CapitaLand and City Developments jumped 3.8 per cent and 4.6 per cent, respectively.

DBS Group , South-East Asia's largest lender, added 4.2 per cent, United Overseas Bank , Singapore's second-biggest lender, climbed 3.9 per cent, and Oversea-Chinese Banking Corp rose 3.5 per cent.

Banking stocks

Ms Lorraine Tan, regional strategist at Standard & Poor's, said while investors should expect more financial institutions to fall victim to the US subprime mortgage crisis, she overweights banking stocks in Singapore, Malaysia and Hong Kong.

This is because the subprime fallout would have limited impact on their earnings, she said.

'There should still be some bad news coming up, but whenever there is a dip in Asia, we see it as a buying opportunity,' Ms Tan said.

In Malaysia, the largest lender Malayan Banking Bhd rose 1.8 per cent. Bumiputra-Commerce Holdings , the second-biggest bank, added 1.9 per cent, while Public Bank Bhd , the No. 3 bank, climbed 1.6 per cent.

In Jakarta, PT Bank Mandiri Tbk , the largest lender, leapt 6.3 per cent, and PT Bank Central Asia Tbk , the second-biggest lender, added 3.4 per cent. -- REUTERS