The overall market sentiment is optimistic as the tapering size is not as big as investors expected. The markets had been expecting the possibility of a larger quantity of tapering. But the first step of the tapering is smaller and the Fed committed to keep the rates lower for a longer period.
The Federal Reserve last policy meeting of the year concluded on Wednesday, and the central bank unveiled a cut in monetary stimulus but vowed to keep interest rates low. The Federal Reserve on Wednesday took the first step to exiting from its controversial bond-buying program, showing greater confidence that the US economy will grow faster and hiring will pick up over the next year. Starting in January, the Fed will reduce the pace of asset purchases to $75 billion from $85 billion a month. And if the economy improves at the pace the Fed expects, outgoing Chairman Ben Bernanke said in a press conference that he could foresee the bond-purchase program coming to an end by late next year. "We are hopeful the economy will continue to show progress," Bernanke said, and return to a "more normal" path of growth. The central could taper at each meeting if the economy continues to improve. He didn't rule out pausing if the economy stumbles or tapering more quickly if growth surprises to the upside.
The Fed split the reduction in asset purchases evenly between Treasurys and mortgage-backed securities. It will now purchase $40 billion per month of Treasurys, down from $45 billion, and $35 billion of mortgage-related securities, down from $40 billion.
In an effort to keep market rates stable, the Fed stressed that it will be in no hurry to raise short-term interest rates. The central bank added new language that it plans to maintain the target Fed funds rates "well past the time that the unemployment rate declines below 6.5%".
The move comes after months of speculation over the timing and scale of reduced bond-buying. The Fed's easy-money policy is credited by many as having provided a key support for global markets this year. When investors started to anticipate the prospect of a reduction in stimulus early in the summer, it resulted in a number of selloffs in emerging markets that hit Southeast Asia particularly hard. The overall market sentiment is optimistic as the tapering size is not as big as investors expected.
Among Asian bourses, shares of the Japanese financial market climbed up sharply, sending the benchmark Nikkei Stocks Average higher by 271.42 points to 15859.22, its best finish since 12 December 2007.
The export-oriented Japanese stocks were sharp higher as U.S. dollar briefly surpassed 104-level against the yen after the U.S. Federal Reserve said it will start reducing monetary stimulus by $10 billion a month in January. Shares of Suzuki Motor Corp improved by 1.73% and Fuji Heavy Industries gained 2.55%, Nintendo Co leaped 5% and industrial-automation firm Fanuc Corp surged 4.1%. Sony and Panasonic added over 2% each.
Mitsubishi UFJ increased 1.7% after acquiring a 72% stake in Thailand's Bank of Ayudhya for $5.31 billion.
In Australia, shares on the Australian financial market rebounded, as investors interpreted the U.S. Federal Reserve's taper decision as confidence in the underlying strength in the economy. The benchmark S&P/ASX 200 index advanced 106.10 points to finish at 5202.20, while All Ordinaries Index (XAO) gained 102.70 points to 5202.
Australian top four banking shares were also recorded strong gain, with Commonwealth Bank adding 1.6% to A$74.85, Westpac Bank 2.5% to A$33.37, National Australia Bank 1.9% to A$34.03 and Australia & New Zealand Banking Group 1.4% to A$31.13. QBE Insurance Group improved by 4.31% to A$2.91 and Suncorp Group advanced 2.15% to A$12.85.
The Australian materials and resources shares were sharp higher, with BHP Billiton gaining 2.8% at A$36.80, while Rio Tinto added 1.8% to A$66.53. Fortescue Metals Group gained 2.5% to A$5.75 and Oz Minerals 5.22% to A$2.82.
Caltex Australia shares jumped 10.9% to A$18.74 after the oil refiner and marketer flagging divergent profit movements, reflecting the impact of the stronger US dollar in undermining refiner margins along with supply disruptions. In historic accounting terms, the net profit is forecast to surge to $515-535 million, well ahead of the $366 million earned a year earlier. However, using the company's preferred replacement cost accounting, it estimates the 2013 net profit is forecast to slump to $320-340 million, well down from the net profit of $458 million earned a year earlier. Flattering the historic profit is an anticipated $200 million gain on product inventories with the currency movement. For the replacement cost accounting profit, margins suffered due to the fall in the Australian dollar coupled with a fall in the refiner margin.
In China, shares of the Mainland China financial market extended falling streak for eighth session in row, dragging the benchmark Shanghai Composite index down by 20.49 points to finish at 2127.79, amid concerns about tight liquidity situation. All sectors of the SSE index dived into the sea of red, with shares of financial, industrial, materials and drug companies led declines.
Market participants in Mainland China continued offloading cyclical positions on mounting concerns about liquidity squeeze in the market after interbank funding costs rose to the highest since June 2013, as central bank declined to add any funding via its open market operations on Thursday. The bank hasn't injected funds for five sessions. The central bank typically adds funding via seven-day reverse repos on Tuesday and will add via 14-day instruments during Thursday's operation.
The seven-day repo rate, a gauge of borrowing costs among banks and usually watched as an indicator of liquidity stress, traded at a weighted average of 6.40% by late afternoon compared with 6.30% prior day.
Shares of Chinese financials and developers declined on concern higher funding costs will hurt economic growth. China Minsheng Banking dropped 2.8% to 7.88 yuan. Huaxia Bank Co. slumped 3.3% to 7.87 yuan. Poly Real Estate, the second-biggest developer, lost 2.2% to 8.40 yuan.
Chinese shipping and drug maker shares also retreated. China Shipbuilding Industry declined 3.1% to 5.59 yuan. China CSSC Holdings Ltd. retreated 3.8% to 20.72 yuan. Jiangsu Hengrui Medicine plunged 2.9% to 35.73. Humanwell Healthcare (Group) Co. slid 2.7% to 25.42 yuan.
In Hong Kong, stock market closed lower in volatile trade on tracking weak cues from Mainland China bourses. The benchmark Hang Seng Index was provisionally down 255.07 points to 22888.75. The benchmark index opened 261 points higher, which is also the intra-day high, in tandem with the strong rally of the Dow, after the Federal Reserve announced the start of its reduction in stimulus. But then pared all its gains and moved into negative territory for most of the day on tracking weakness in the Shanghai bourses.
Among the HK 50 blue chips, 42 fell, 6 rose, while remaining 2 stocks closed steady. Kunlun Energy rose 1% to HK$13.9 and making it the top blue-chip gainer. Hang Lung Properties plunged 4.6% to HK$24. It was the top blue-chip loser.
In economic news- The volume of Hong Kong's re-exports of goods in October rose 7.6% from a year earlier, whereas that of domestic exports dropped 9.5%. Taken together, the volume of total exports and imports of goods grew 7.3% and 5.8%, data from the Census and Statistics Department showed. Comparing the first ten months of 2013 with the same period in 2012, the volume of Hong Kong's re-exports of goods rose 3.4%, whereas that of domestic exports fell 9.5%. Taken together, the volume of total exports and imports of goods increased 3.2% and 4.1%.
Hong Kong's composite interest rate, which is a measure of the average cost of funds of banks, was unchanged at 0.34% at the end of November 2013, same as its level at the end of October. Both the weighted funding cost for deposits and interbank funds remained steady during the month.
In India, Indian benchmark indices edged lower in choppy trade as the US Federal Reserve's move to cut its bond-buying program rekindled concerns of slowing foreign inflows. The reduced availability of cash in the global financial system could temper the flow of foreign money into India, which has been one of the biggest beneficiaries of foreign capital. Foreign institutional investors (FIIs) have purchased shares worth a net Rs 106674.30 crore in 2013 so far (till 17 December 2013). FIIs had bought shares worth a net Rs 128359.80 crore in calendar 2012. Fed's bond-buying program had become a source of funds for investment in Indian as well as other emerging markets in recent years.
As per provisional closing, the S&P BSE Sensex was down 150.92 points or 0.72% to 20,708.94. The index lost 213.83 points at the day's low of 20,646.03 in morning trade. The index jumped 157.59 points at the day's high of 21,017.45 in early trade, its highest level since 12 December 2013.
Indian index heavyweight Reliance Industries (RIL) edged lower in volatile trade. Shares of car maker Maruti Suzuki India hit record high as the Japanese yen touched a five-year low against the dollar overnight on the US Federal Reserve's decision to reduce monetary stimulus for the US economy. Power Grid Corporation of India (PGCIL) fell in volatile trade amid huge volumes as shares allotted in the company's follow-on public offer (FPO) were admitted for trading on the bourses today, 19 December 2013. Bank stocks fell in volatile trade. Capital goods stocks also edged lower.
Elsewhere in the region, South Korea's KOSPI rose 0.7%. Indonesia's Jakarta Composite index added 0.85%. Taiwan's Taiex index rose 0.7%. New Zealand's NZX50 index jumped 0.67%. Singapore's Straits Times index gained 0.28%. Malaysia's KLSE Composite shed 0.07%.
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