Equities' New Bull Run Started

The equity markets had a double boost last week thanks to Federal Reserve's QE3 (quantitative easing part 3). The Fed will start by buying $45bn worth of long term Treasury bonds and up to $40bn worth or mortgage backed securities each month till labour markets improve. The smarter move by the Fed this time is that its a continuous monthly action, and will continue basically till labour markets improve, i.e. drop in unemployment. These actions will go a long way to restarting a new uptrend for global equities. The combined $85bn buying will keep interest rates low for sometime still thus forcing more funds to seek out higher returns, e.g. moving into equities.

An equally important development was the weakening of the yen, which looked like the start of a sustained weakness in the yen. This has started a rush for Japanese exporters by investors. Following the QE3, it appears investors see no more need to hold the yen as a safety haven. That being the case, the Japanese economy badly needs the yen to weaken even more. Hence its a timely boost for Japanese equities as well.


The ringgit opened firmer against the greenback in early trade today following improved sentiment for risk appetite across the region, dealers said. At 9.23 am, the ringgit was quoted at 3.0500/0520 compared with yesterday's close of 3.0520/0540. The increased risk appetite was boosted by the US Federal Reserve, which in turn will benefit globally as the move will see more money being pumped into the world's largest economy. After a two-day meeting which ended yesterday, the central bank announced new stimulus, which, among others, will see interest rate decisions tied to unemployment rate and inflation. It would also keep short-term interest rates close to zero until the unemployment rate, currently at 7.7 per cent, dips to 6.5 per cent. 

Previously, the US Federal Reserve had said that interest rates would hover near zero until at least mid-2015. Besides, the central bank decided to introduce a replacement for Operation Twist, the expiring programme introduced last year of swapping short-term Treasuries for longer-dated ones. Previously, the goal of Operation Twist was to lower long-term interest rates to stimulate the US economy. This new asset purchase programme has been dubbed as quantitative easing four (QE4). With QE3 and QE4 together, the central bank will likely purchase US$85 billion a month of Treasury securities, stacking the Fed's portfolio with government-backed investments for an extended period. 
 
On the local front, the ringgit was mostly higher against other major currencies. The local currency rose against the Singapore dollar to 2.4980/5012 compared to 2.4984/5010 yesterday and appreciated against the Japanese yen to 3.6571/6612 compared to 3.6810/6856 Wednesday. It gained against the British pound to 4.9190/9229 compared to 4.9214/9256 on Wednesday but declined against the euro to 3.9839/9874 from 3.9713/9749 previously.

 The Starbiz had the headline as "higher risk appetite for ringgit", well, not really, its the start of a huge inflow of foreign funds. Thanks to the above factors, a lot of fresh funds have jumped into mainly indexed local stocks over the last few days. Many indexed stocks have just surged past their 52 weeks high or close to it: UMW, SK Petro, and most of the banks. The buying has been ferocious in local telco stocks. Generally the second liners and speculative stocks will take a backseat when the index stocks are surging. Once the indexed stocks have stabilised, you should see strong rotational plays in second and third liners.