Asian Stocks Set for Biggest Two-Day Rally Since October on Fed

Asian stocks rose, with the regional benchmark index heading toward its biggest two-day gain since early October, after the Federal Reserve raised U.S. interest rates for the first time in almost a decade and signaled a gradual pace for future increases.

The MSCI Asia Pacific Index climbed 0.9 percent to 130.72 as of 4:01 p.m. in Hong Kong, heading for a two-day advance of 3.2 percent. The gauge is down 5.2 percent for the year, pulled lower by commodity and financial shares. Health-care and utility companies led gains Thursday, while energy stocks had the only decline among 10 major industries.

Asian equities followed gains in the Standard & Poor’s 500 Index, which capped its biggest three-day rally since Oct. 5 as Fed Chair Janet Yellen expressed confidence the world’s largest economy is resilient enough to withstand future increases in borrowing costs.

“There’s a sense of relief that they finally raised rates,” Chris Green, an Auckland-based strategist at First NZ Capital Group Ltd., a brokerage and wealth management firm, said by phone. “This is a net positive in terms of market sentiment. It’s removed the point of liftoff from the discussion, we’re over that hurdle. Now the question is: how gradual is that normalization profile and where do the risks lie.”

Fed Move

In a move that was widely telegraphed, the Federal Open Market Committee unanimously voted to set the new target range for the federal funds rate at 0.25 percent to 0.5 percent, up from zero to 0.25 percent. Policy makers separately forecast an appropriate rate of 1.375 percent at the end of 2016, the same as September, implying four quarter-point increases in the target range next year, based on the median number from 17 officials.

“It was very anticipated,” Joshua Crabb, head of Asian equities in Hong Kong at a unit of Old Mutual Plc, said by phone. “People got exactly what they wanted. That’s a good thing.”

The U.S. rate increase solidifies the Fed’s divergence from other major central banks, with policy makers in Europe and Japan still emphasizing measures to support growth. The Bank of Japan starts Thursday a two-day meeting where policy makers are expected to maintain record stimulus.

Japan’s Topix index rallied 1.6 percent as the yen weakened, giving the gauge to a two-day increase of 4.1 percent, the most since Oct. 1. Marui Group Co. advanced 6.8 percent, pacing gains among Japanese retailers after data showed foreign visitors to the country continued to surge in November.

Australia’s S&P/ASX 200 Index jumped 1.5 percent, while New Zealand’s S&P/NZX 50 Index increased 0.3 percent. South Korea’s Kospi added 0.4 percent. Taiwan’s Taiex index climbed 1.7 percent. Singapore’s Straits Times Index rose 0.8 percent. Hong Kong’s Hang Seng Index gained 0.8 percent, paring an earlier rally of as much as 1.4 percent.

China Rally

China’s stocks rose as funds flowed back to the equities market after a recent spate of initial public offerings, while the yuan weakened for a record 10th day, bolstering the outlook for exports. The Shanghai Composite Index climbed 1.8 percent to the highest close in two weeks.

E-mini futures on the S&P 500 Index slipped 0.2 percent after the underlying measure climbed 1.5 percent Wednesday.

The central bank’s action ends an era of unprecedented monetary stimulus that pushed U.S. stocks higher by more than 200 percent and added $15 trillion in value during the 6 1/2 year bull market. Investors will now find out how much stocks are worth in the absence of Fed support, and how high borrowing costs will be without the central bank stoking growth as aggressively.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE