Lower U.S. Interest Rates Benefit Asian Markets, But Korea, Taiwan May Not Match Fed's Move
Asian markets generally welcome U.S. interest-rate cuts, but South Korea and Taiwan demonstrate why the Federal Reserve's move won't necessarily translate into parallel action across the Pacific.</br></br>South Korea's higher-than-expected inflation numbers could imperil the size and timing of anticipated interest-rate cuts, despite the Fed's decision yesterday to cut rates one-half percentage point. At the same time, analysts believe that Taiwan will act more aggressively than the U.S. Fed in easing rates to prevent the Taiwanese currency from becoming too strong.</br></br>"That works to the favor of the Taiwanese stocks," said Shu Yin Lee on the Asian equity sales desk for J.P. Morgan Chase in New York.</br></br>Shares in South Korea and Taiwan both jumped yesterday with heavy foreign buying setting the pace again. Most other Asian markets also rallied ahead of the Fed move, while the Tokyo market was flat. Most European blue-chip indexes finished higher, though most closed shortly before the Fed action. Overall, the Dow Jones World Stock Index fell 0.05%, or 0.11, to 216.31. Excluding the U.S., the index rose 0.75%, or 1.19, to 159.13.</br></br>The Fed's rate cut -- combined with an earlier half-percentage-point reduction at the start of the year -- is good news for Asian and other emerging markets whether they follow the central bank's lead or not.