Global Shares Rally as Bond Yields Fall

World shares rose and bond yields fell on Thursday, a day after the United States Federal Reserve unexpectedly held back on trimming its massive stimulus programme.

Reuters reported that the Fed announced its decision before the close of US markets on Wednesday, sending Wall Street to new highs. While Wall Street’s major indexes showed little follow-through on Thursday, markets that were closed at the time of the statement – including those in Europe and Asia – surged.

Investors celebrated the prospect of continued stimulus in the world’s largest economy, even though the Fed said it was sticking with the current pace of bond purchases because of concerns about the strength of US recovery. The Fed also cut its growth outlook for both 2013 and 2014.

MSCI’s world share index, which tracks equities in 45 countries, jumped 0.9 per cent to a five-year high as large gains in Asian markets were followed by a 0.5 per cent rise in European shares.

The Dow Jones industrial average was down 24.61 points, or 0.16 per cent, at 15,652.33. The Standard & Poor’s 500 Index was down 1.49 points, or 0.09 per cent, at 1,724.03. The Nasdaq Composite Index was up 1.54 points, or 0.04 per cent, at 3,785.18.

“After the substantial move yesterday and people digesting the fact that tapering is put on hold, I don’t expect a big move today,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research in Cincinnati, Ohio.

The chance that US interest rates could stay low for longer was further raised after a White House official said that Janet Yellen, the Fed’s vice chair and a noted policy dove, was the front-runner to take over the Fed when Ben Bernanke steps down in January.

Emerging stocks hit four-month high
Stocks in emerging nations advanced to a four-month high and Turkey entered a bull market after the Federal Reserve refrained from cutting stimulus. The ringgit climbed the most since the 1998 Asian financial crisis, Bloomberg News reported.

The MSCI Emerging Markets Index added 2.4 per cent to 1,024.76 at 11:33 a.m. in New York, set for the highest level since May.

The Borsa Istanbul National 100 Index surged 6.4 per cent, the most among the 94 world gauges tracked by Bloomberg, extending a gain from its August low to 21 per cent. Russia’s RTS Index rose 3.4 per cent and India’s shares increased to a three-year high.

Malaysia’s currency climbed 2.6 per cent, while Indonesia’s rupiah strengthened the most in 15 months.

The Federal Open Market Committee yesterday refrained from reducing the $85bn pace of its monthly securities buying, spurring a rally in global equities as investors repositioned for a more accommodative central bank. The measure for stocks in developing nations has retreated as much as 16 per cent since May 22, when the Fed signaled its asset-buying programme could be trimmed if the US economy showed sustained improvement.

“The good news was that the markets don’t have to worry about the taper they were concerned about,” Bruce McCain, who helps oversee more than $20bn as chief investment strategist at the private-banking unit of KeyCorp in Cleveland said by phone. “They set up pretty strong expectations they would begin to taper.”

All 10 groups in the MSCI Emerging Markets Index rose today as financial and energy shares had the biggest gains.