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Quantitative Easing

Quantitative easing (QE) refers to large-scale asset purchases by the US Federal Reserve to inject liquidity in the world’s biggest economy after the onset of the global financial crisis in late 2008. In September 2012, stubbornly high US unemployment and faltering economic growth prompted it to launch QE3, under which it planned to buy US$40 billion worth of bonds per month, with no set end date. As of late 2012, it had bought some US$2.3 trillion in long-term securities. In December 2012 it announced it was increasing its purchases to US$85 billion a month.

BusinessEconomy
MARKETS

Fed easing triggers sharp rise in HK stocks

Investors in Hong Kong pounce on property and commodity plays, sending the Hang Seng Index to the highest close in four months

PUBLISHED : Saturday, 15 September, 2012, 12:00am
UPDATED : Saturday, 15 September, 2012, 3:30am

Hong Kong stocks rose yesterday to their highest in four months, led by property and commodity-related issues.

The rally was driven by speculation that the US Federal Reserve's potentially unlimited quantitative easing measures will boost asset prices in the region.

The Hang Seng Index surged 582.15 points or 2.9 per cent to end at 20,629.78, the highest level since May 4. The H-share index rose 3.68 per cent to close 349.16 points higher at 9,829.43.

Mainland markets, however, posted milder gains with the Shanghai Composite Index rising just 0.64 per cent. Market watchers said the effect of the US easing on A shares was limited, as the market was still largely closed to foreign capital flows.

In London, the FTSE 100 closed up 1.6 per cent at 5,915.55, its highest close since March. In the US, the S&P 500 was up 0.5 per cent in morning trading.

JP Morgan economist David Hensley said in Hong Kong the Fed was underscoring its determination to get the US economy back on track: "Potentially, the package could turn out to be a much larger commitment than the US$200 billion to US$300 billion we had in our minds."

The Fed announced overnight it would buy US$40 billion a month of securities supported by property loans and maintain ultra-low short-term interest rates until mid-2015 in its efforts to bolster an anaemic recovery in the world's largest economy.

Property, energy and commodities stocks rose across the board in reaction when the market opened yesterday, as a sharply weaker US dollar spurred investors' risk appetite for equities.

Materials and energy firms led gains on the Hang Seng Index.

"It's time to buy now," said Michael Wong, a director for securities and asset management at Convoy Asset Management. "We expect a continued equity market rally in the wake of the Fed's action. People have been sitting on cash for too long."

Sun Hung Kai Properties rose 4.39 per cent to HK$111.80 after its earnings results beat market estimates, triggering a slew of price target upgrades by financial institutions, including Goldman Sachs and Credit Suisse.

The Hang Seng properties sub-index, which tracks nine heavyweight property developers, rose 3.19 per cent to the highest level since August last year.

"We will reduce our cash position and start to buy more equities, especially those property issues, as they are sensitive to the [Fed's] easing measures," said Renault Kam, a director at GF Asset Management (Hong Kong).

Commodities producers, especially gold stocks, rose sharply on speculation that a flood of US dollars would boost demand for the precious metal as a way to maintain asset value.

Spot gold touched US$1,778 an ounce, its highest level since February 29. Zijin Mining rose 11.36 per cent to HK$3.04 and Zhaojin Mining Industry soared 15.54 per cent to HK$13.38.

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