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THE chase for yields drove Asian stocks to a 10-month high for a seventh day yesterday as investors were lifted by improving corporate earnings. But the non-stop pace of the rally has caused some to wonder if it is overdone.
The stock rally also lifted most Asian currencies against the US currency, even though it is unclear whether the rally is sustainable.
The Singapore dollar rose 0.13 per cent to $1.4392 against the green back, while Indonesian rupiah went up 0.53 per cent to 9,925. The Malaysian ringgit strengthened to RM3.5095, from 3.53 a day earlier.
In equity markets yesterday, the Hang Seng rose 1.84 per cent, while the Jakarta Composite gained 1.27 per cent. Malaysia's KLSE Composite went up 15.95 points to close at 1,172.38, while the Straits Times Index rose 1.84 per cent.
The strength on in Asian bourses followed that in the US, where stocks rose on Monday after data showed home sales surged last month.
Matthew Strauss, senior currency strategist at RBC Capital Markets, said: 'Although most equity markets closed in positive territory and most high-yielders recorded gains, risk appetite struggled during the North American session in the absence of reasons to drive riskier markets higher.'
Henry Hon and Daniel McCormack, strategists with Macquarie in Hong Kong, said in a research note: 'These strong liquidity conditions are pushing Asian equities to stretched valuation levels in our view. We think a strong recovery in global final demand is now priced in.'
They recommend slowly cutting exposure to riskier stocks as prices rise further.
The highlight in the forex market yesterday was the Australian dollar, which soared against its US counterpart after Reserve Bank of Australia (RBA) governor Glenn Stevens said the nation's economy may rebound faster than the central bank predicted six months ago, as consumer and business confidence improve.
The Australian dollar was up 1.55 per cent to 83.28 US cents, after earlier hitting 83.37 US cents - its highest level this year.
RBC Capital said: 'Our Taylor Rule analysis suggests that the RBA will be one of the first G-10 central banks to hike rates.'
The euro climbed against the greenback late on Monday in New York, trading at US$1.4228, ahead of US home price data and a consumer confidence report. The currency rose to an eight-week high overnight after a report showed US new home sales rose 11 per cent last month - the biggest monthly rise since 2000.
Among commodities, oil prices edged up, cutting early losses as share markets turned higher. US light crude for September delivery was up 0.5 per cent to US$68.70 a barrel, while Brent climbed 0.5 per cent to US$71.18.
Aluminium climbed 1.6 per cent on the London Metal Exchange to US$1,855 a tonne, taking its gain for the year to 20 per cent. Copper, up 84 per cent this year, rose 0.8 per cent to US$5,644 a tonne.
The gold prices was steady yesterday at US$955.65 an ounce. 'Demand is still muted as rates are going up,' Reuters quoted a dealer with a private bank in Mumbai as saying.
A seasonally slack period is under way in India for gold trade due to the monsoon, when fewer weddings take place.
US Treasury debt prices edged down in Asian trade yesterday as the market readied for an auction of two-year government debt - part of a record US$115 billion sale this week of coupon securities.
Also, the benchmark 10-year note yielded 3.733 per cent - up almost one basis point from late US levels - before closing lower at 3.6954 per cent in the evening. Two-year notes slipped to yield 1.047 per cent - up almost one basis point - in late US trade, but down from 1.08 per cent on Monday, which was the highest level this month.
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