Asian markets relatively higher all eyes on US quantitative easing decision

The Hong Kong stock market rose to its highest level in more than two years today, largely led by banks and energy stocks. The market appears to suggest that a second round of quantitative easing in the US will spur more international funds flow into Hong Kong, seeking to benefit from strong economic growth in China and possible Yuan appreciation.

Cheaper borrowing costs have driven asset prices higher across the globe while China has taken to tightening monetary policy to curb domestic inflationary pressure. China’s capital inflow controls make Hong Kong an attractive proposition to foreign investors.  All the mainland banks traded higher today with ICBC (1398.HK) taking the lead, gaining close to 4% in the early trading session. Semiconductor Manufacturing (981.HK) gained 4.55% in the early session after releasing higher than expected quarterly profits.

Singapore’s Strait Times Index closed 0.8% higher at 3,231. The first half trading session was largely led by the industrial and consumer goods sectors. Neptune Orient Lines was in favour today rising as much as 3.7% to a six month high as the market speculation on possible improved. Tiger airways also gained 1.6% today after announcing a S$14.1 million second quarter profit compared with a previous loss of S$2.3 million

The Australian share market (up 21 to 4,722) drifted higher today ahead of the much anticipated announcement of the US Federal Reserve’s stimulus package, or QE2. A strong profit result from Westpac Bank (up 0.5% to $23.42) this morning saw its shares rise at the expense of the three other major banks, as investors rotated back into Westpac. By this afternoon, most had returned to positive territory.

Resource shares moved broadly ahead, as did consumer staples, suggesting both growth-related and defensive investors were buying. Westfield ($12.81) shares remained in suspense after announcing the creation of a $12 billion property trust to hold 54 of their local shopping centres.

Markets volumes are subdued, and are unlikely to improve before the QE2 announcement at 6.15 am Sydney time tomorrow. Having seen markets buy both weak data on the basis of a large stimulus response, and buy strong data on an improving economic scenario, the Fed is now facing a potential lose / lose scenario. If they announce a large stimulus, markets may interpret it as a sign that the US economy is worse than feared. If they announce a modest package, markets may call it “too little, too late.”