Asia Stocks Rise to Six-Year High on U.S., China Growth Optimism

Jun 19, 2014 7:49 am ET

June 19 (Bloomberg) -- Asian stocks climbed to a six-year high after the Federal Reserve said interest rates will remain low for some time as U.S. growth rebounds, and Premier Li Keqiang pledged to meet China’s target for economic expansion.

BHP Billiton Ltd., the world’s largest miner, rose 3.3 percent in Sydney as materials companies led gains. Seiko Epson Corp. surged 7.4 percent after Citigroup Inc. said earnings at the Japanese printer maker are above market estimates. China Overseas Land & Investment Ltd. lost 2.6 percent in Hong Kong as UBS AG said it expects more extensive property price cuts.

The MSCI Asia Pacific Index advanced 1.2 percent to 145.44 as of 7:46 p.m. in Hong Kong for its biggest gain since Feb. 7 as all 10 industry groups rose. It reached its highest level since June 2008. Fed Chair Janet Yellen said accommodative monetary policy, rising home and equity prices plus an improving global economy should produce an above-trend U.S. expansion.

“The Fed sounded upbeat about the economy and it certainly managed to maintain a dovish tone,” said Stan Shamu, a Melbourne-based markets strategist at IG Ltd. “Adding to the positive sentiment were comments by Chinese Premier Li, who reinforced that his country would maintain a minimum growth rate of 7.5 percent and ruled out a China hard landing.”

The Topix jumped 1.6 percent today to its highest close in almost five months. Seiko Epson soared 7.4 percent to 4,220 yen.

Regional Gauges

Australia’s S&P/ASX 200 Index advanced 1.6 percent, its biggest jump in six months. Hong Kong’s Hang Seng Index fell 0.1 percent. New Zealand’s NZX 50 Index increased 0.2 percent, while South Korea’s Kospi index and Singapore’s Straits Times Index lost 0.2 percent. Taiwan’s Taiex index gained 0.4 percent. India’s S&P BSE Sensex Index slid 0.2 percent.

The Shanghai Composite Index declined 1.6 percent amid concerns new share sales will divert funds and a property slowdown will hurt economic growth.

The Federal Open Market Committee continued to trim bond purchases that have fueled a rally in equities around the world. The FOMC repeated that it’s likely to “reduce the pace of asset purchases in further measured steps” and keep interest rates low after the bond-buying ends.

U.S. Economy

Yellen said while stock valuations are within historic norms, low volatility may become worrisome should it encourage excessive risk-taking. The Fed predicted that the target interest rate in the U.S. will be 1.13 percent at the end of 2015 and 2.5 percent a year later, higher than previously forecast. Policy makers lowered their long-run estimated rate, reflecting a slower growth rate for the U.S. economy.

China will have “medium to high-level” growth in the long run, Premier Li said during a speech in London yesterday, adding that he could promise “honestly and solemnly there won’t be a hard landing.”

“The Chinese government is adjusting its economic operations to ensure the minimum growth rate is 7.5 percent, the level to ensure job creation,” Li said in the speech.

Relative Value

The MSCI Asia Pacific Index traded at 13.2 times estimated earnings yesterday compared with 16.6 for the Standard & Poor’s 500 Index and 15.5 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

Futures on the S&P 500 slipped less than 0.1 percent today after the gauge climbed 0.8 percent yesterday to close at a record high.

Materials shares led gains across the region as BHP Billiton climbed 3.3 percent to A$36.43 and Rio Tinto Group advanced 2.3 percent to A$59.24 in Sydney. Nippon Steel & Sumitomo Metal Corp. gained 3.1 percent to 329 yen in Tokyo.

Nippon Sheet Glass Co. surged 17 percent to 145 yen, the steepest gain since February 2013. Nomura Holdings Inc. raised its rating on the Japanese company to buy from neutral, citing expectations for greater improvement in the glass business over the next three years.

China Overseas Land lost 2.6 percent to HK$19.52 in Hong Kong. Broader price cuts are likely to happen in August or September when new property projects are scheduled to be introduced, according to UBS analyst Eva Lee.