(Bloomberg) --
The U.S. Federal Reserve's unprecedented bond buying program has thrown a lifeline to Asian equities as the dollar's reversal eased concerns over capital flight from the region and fueled risk appetite.
The MSCI Asia Pacific Index rallied as much as 4.8% as of 3:58 p.m. in Hong Kong on Tuesday, set for the most since October 2008. South Korea stocks jumped 8.6% after the nation doubled its emergency funds, while Japan's blue-chip measure Nikkei 225 rose 7.1%, the most since 2016. Hong Kong's Hang Seng Index closed 4.5% higher.
It is a sharp contrast to a sea of red for Asian equities on Monday that saw record losses for India and New Zealand benchmarks after announcements on nationwide lockdowns. The Fed's unlimited quantitative easing prompted traders to return to risk assets, sending almost all Asian Pacific currencies including the Australia dollar and the South Korean won jumping.
“The Fed's latest round of stimulus is a gamechanger,” said Edward Moya, a senior market analyst at OANDA. “The Fed has delivered three huge acts in March and this latest one should satisfy everyone, including President Trump.”
Most risk assets rose Tuesday and the dollar snapped a 10-day rally. Spreads on dollar notes in Asia tightened for the first time in 10 days after the Fed action, but remain near Monday's eight-year high. China plans to lift lockdown measures in Wuhan, the city subjected to a mass quarantine since the start of the coronavirus outbreak. Global cases have topped 381,000 with about 16,500 deaths.
“A drop in the U.S. dollar helped a lot,” said Steven Leung, an executive director at UOB Kay Hian (Hong Kong) Ltd. “It will also help ease pressure on the region's capital outflow.”
Meanwhile investors are still waiting for the passage of the largest stimulus bill in the U.S. history to fight the economic fallout of the coronavirus. Futures contracts on the S&P 500 added 5.1% in late Asian afternoon, hitting exchange-enforced bands that prevent further gains, reflecting speculation that Congress would eventually pass a spending package.
Yet some market veterans including Mark Mobius warned that volatility can continue in Asian equities.
Traders Beware: Asia's Stock Rallies Can Be Just Bear-Market Bounces
“As the economic impact of the shutdowns around the world begin to work their way through the economics we can expect more volatility,” Mobius said. “Our research indicates that the average length of a bear market is a little less than two years,” he added.
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