Asia markets hunger for coordinated crisis response
Easing monetary policy in Asia will support what is now the only source of growth for the world economy, but oversold regional stocks and short-maturity bonds will only get a lift when central banks globally follow suit.
Such moves could provide the trigger for many investors that have switched into cash or money-market mutual funds not only to avoid spikes in volatility but also so they are ready to pounce on attractive investments when the time is right.
Total assets in money market mutual funds have soared this year, data from the Investment Company Institute (ICI) shows, suggesting many investors are staying on the sidelines as valuations of stocks relative to long-maturity bonds get increasingly attractive.
“Coordinated central bank action including Asian central banks would be a powerful signal to global financial markets. I wouldn’t rule it out but international coordination is very difficult to achieve,” said Stephen Roach, chairman of Morgan Stanley Asia (pay day loans).
A big 1 percentage-point rate cut by Australia’s central bank provided investors with a taster on Tuesday. Markets jumped immediately, providing relief from a credit crisis that JPMorgan economists say is driving the world economy into recession.
The economists say developing Asia-ex Japan will be spared recession and grow 7.1 percent this year, although China, Taiwan and Hong Kong have sought some insurance by cutting policy rates in the wake of Lehman Brothers’ collapse last month.
Bond markets globally are starting to price in the risk of coordinated rate cuts among the world’s major central banks, which would be an about turn for many policy makers, who until recently were largely focused on keeping monetary policy tight to combat inflation.
But time is of the essence.