Once again the uncertain state of Asian economies was emphasised yesterday.
India markets boomed in the wake of the surprisingly strong win for the Congress Party Government in the national elections, while at the other extremity, Japan’s foreign currency rating was cut from Aaa by Moody’s to Aa2.
India’s Bombay Stock Exchange and National Stock Exchange stopped trading for the day after shares surged, triggering the day’s second halt.
The benchmark Sensitive index gained 17.2% to 14,272.63 and the Nifty index jumped 17.3% to 4,308.05, triggering a day’s halt in trading for the first time ever.
India’s surge seems to have reversed Asia’s down trend as trading spread to Europe and then the US where solid rises were reported across the board. London and European markets were up 2%, the US was stronger for much of the day.
The surge put the Indian market up 48% from the start of this year. That made it the best performing emerging market.The rupee gained 3% against the US dollar and interest rates fell.
Indian markets had soared; briefly at first, as trading on stockmarkets was halted after only a few second trading because the rise was greater than allowed by trading curbs.
India stopped trading as buying pressure built up on speculation Prime Minister Singh’s election victory will help his party implement reforms to boost economic growth.
The latest poll results had the Congress-led coalition with 262 of the 543 parliamentary seats. It only needs 1o more to have a majority of 272 seats.
The Hindu nationalist opposition Bharatiya Janata party trailed the Congress-led group with 160 seats, while the communists will end up with 16 seats, down from 43 in 2004 and regional groups won’t be a force.
Trading on the Bombay Stock Exchange was halted within seconds of the 9:55 am (Indian time) after the Sensex Index, surged 1,306, or 10.7%. The surge triggered the first-ever freeze in trading after breaching a maximum upper limit.
According to Bloomberg India’s two main exchanges revise index limits each quarter. For the quarter ending June 30, trading is halted on both exchanges if either the Sensex climbs 975 points or the Nifty Index advances 300 points.
Under exchange rules, trading was halted for two hours on both exchanges because the Standard & Poor’s Nifty Index jumped more than 450 points. As of the halt, the Nifty climbed 531.65, or 14.48%.
When trading was restarted, the buying pressure was so great, that it forced a second suspension and the two markets decided to call a halt to trading for the day after the surges.
The rupee jumped more than 2% against the US dollar, the biggest advance since in more than 10 years.
Credit Suisse Group sounded a note of caution, saying that while India will benefit from a “large amount of capital flowing into” the country, the rally may be undermined by “global markets, monetary and fiscal constraints, and data disappointment.”
But in London Morgan Stanley raised the country’s stocks to “overweight” from “underweight,” saying never before had its model recommended over-weighting India. The two-step upgrade reflected improvements in political risk, outlook for the business cycle and earnings growth.
The firm lifted its forecast for economic growth next year to 5.8%, from the previous forecast of 4.4%.
In Japan, Moody’s cut the country’s foreign-currency debt rating from Aaa and raised the local-currency assessment from Aa3, saying it can no longer assume that Japan would be more likely to repay debt borrowed in currencies other than the yen.
According to a statement issued yesterday, the ratings agency said:
“The unified rating of Aa2 reflects Japan’s considerable strengths,” Moody’s said.
“However, the rating also reflects the risks of Japan’s high level of debt, which leaves the country’s fiscal position vulnerable to shocks or imbalances that would cause a sharp rise in interest rates.”
The outlook for the country’s debt is stable.
Moody’s has raised the domestic rating to Aa3, the fourth-highest investment grade, last June on expectations that the government will show “continued fiscal restraint.”
Since then, Two Governments have revealed huge spending stimulus packages totalling more than $US260 billion as the country’s economy has plunged into deep recession.
That has meant an explosion in debt which could end up twice the size of the economy in a year’s time.
The parlous state of the country’s economy will be confirmed tomorrow when the Cabinet Office reports on first quarter economic growth. That’s expected to show an annual 16% contraction.
Recent reports suggest that could be a low point for the economy.
Household confidence hit a 10 month high in April, according to another Cabinet Office report yesterday.
That was overshadowed by the downgrade and the slump on the market of 2.4% as Japanese stocks slumped in the wake of Panasonic forecasting a second year of losses.
The confidence index climbed to 32.4 last month from 28.9 in March, the biggest jump since for two years.
The index has risen since dropping to 26.2 in December, the lowest since the government began compiling the figures in 1982.
