The Federal Reserve's latest rate cut, its second this year, has reverberated across global markets. The Fed announced a 25 basis point reduction in the federal funds rate, adjusting it to a range of 4.5% to 4.75%. This monetary easing has contributed to fluctuations within the Asia-Pacific stock markets, as investors absorb both the U.S. election results and economic policy changes.
In the past week, Japan's stock market gained 3.8%, reflecting a continued upward trend over two weeks. Korea’s market saw a modest recovery, rising 0.74%, while Australia’s S&P/ASX200 index climbed 2.17%. In Southeast Asia, market performance varied: Indonesia’s Jakarta Composite Index fell by 2.91%, while Singapore’s Straits Times Index rose by 4.75%. Malaysia and Thailand’s indices saw slight increases, whereas the Philippines and Vietnam experienced declines.
Professor Li Huihui from the Lyon Business School attributes minor gains in Southeast Asia to cautious optimism regarding future policy environments. Anticipation of U.S. economic stimulus measures could indirectly boost global demand, benefitting Southeast Asian economies. Additionally, domestic stimulus efforts are bolstering corporate profit expectations, despite currency depreciation challenges. Future Southeast Asian market trends will heavily depend on global economic recovery and U.S. policy implementations.
Japanese stocks registered the most significant recovery among Asia-Pacific markets. Supported by a weakening yen, Japan's market surpassed the 39,000-point threshold. StanChart’s Chief Investment Strategist Wang Xinjie suggests that favorable wage policies and shareholder benefits may sustain this upward momentum. However, exchange rate volatility and concerns over potential monetary policy changes by Japan's central bank pose risks to the outlook.
The "Trump Trade 2.0" effect, marked by rising U.S. Treasury yields and a stronger dollar, has pressured Southeast Asian markets. October saw capital outflows from five out of six countries, with only Singapore and Malaysia witnessing inflows. Despite these challenges, Vietnam is easing restrictions on foreign investment, potentially attracting more international funds and improving its market classification from "frontier" to "emerging market".
Southeast Asian nations are facing mixed monetary policy directions. While Thailand and the Philippines have cut rates, others like Indonesia and Singapore are holding steady. Despite the Fed’s recent rate cut, Southeast Asian countries might struggle with capital flight and currency depreciation due to strengthening dollar pressures and global economic uncertainty. Balancing monetary stability with economic stimulus remains crucial for these economies.
Japan's former central bank executives suggest rate hikes are likely, especially considering plans to increase benchmark rates by early 2024. However, the potential for U.S. trade policies affecting Japanese exports could influence future monetary decisions.
Overall, the Fed's actions continue to shape global financial conditions, with Southeast Asian economies watching closely to align their policies amid external economic challenges.
