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[SINGAPORE] The US central bank's decision to hold off hiking interest rates sent emerging market currencies and most Asian markets advancing on Friday (Sept 18), as concerns eased over an outflow of cash as the global economy suffers a painful slowdown.
In mid-morning trade most Asian stock markets advanced with Hong Kong up 0.63 per cent, Shanghai 0.33 per cent higher and Sydney and Seoul 0.30 per cent stronger.
But Tokyo was 1.28 per cent lower as investors were spooked by Mr Yellen's downbeat assessment of the global outlook. However, it pared earlier losses of almost two per cent.
The Straits Times Index was up 0.63 per cent at 2,914.09 as of 11:05 am.
After one of the most eagerly awaited meetings in years, the US central bank's head Janet Yellen said the ongoing crisis in China and recent turmoil on world markets had played a role in keeping borrowing costs at zero.
Her comments weighed on US stocks overnight, with the Dow, S&P 500 and Nasdaq all ending in negative territory on Thursday following the Fed decision.
The Fed's decision followed widespread warnings about the dire impact a rate increase could have, with the World Bank predicting this week it would cause a "perfect storm" in financial markets.
Ms Yellen told a news conference: "A lot of our focus has been on risks around China, but not just China, emerging markets more generally and how they may spill over to the United States."We've seen significant outflows of capital from those countries, pressures on their exchange rates and concerns about their performance going forward," Ms Yellen said of the emerging market economies."The question is whether or not there might be a risk of a more abrupt slowdown than most analysts expect." The news pushed the US dollar lower. It was buying 120.00 yen in Tokyo early trade, compared with 120.90 yen in Asia on Thursday. The euro was at US$1.1405 against US$1.1302 a day earlier.
Struggling emerging market currencies, which have been rising this week on hopes the bank would hold fire, were also higher. The South Korea won added 0.05 per cent, the Malaysian ringgit gained 0.60 per cent and the Singapore dollar was 0.15 per cent higher."For emerging-market central bankers, the Fed has given them some much-needed breathing room," said Jonathan Lewis, a principal at New York-based Samson Capital Advisors."Postponing a Fed tightening gives these central bankers room to be more accommodative, without their actions being offset by a tighter Fed," he added, according to Bloomberg News.
Economists had warned a rise now could severely hurt emerging economies as investors would likely withdraw more cash to the United States for better and safer returns.
This, in turn, would have forced other central banks to hike rates - at the same time as trying to foster growth - in a bid to support their currencies and prevent a flight of capital.
Matt Maley, an equity strategist at Miller Tabak & Co in New York, said that with the decision now out of the way, traders "are going to start focusing more on the problems that caused the correction in August, which is weakness in China and other emerging markets and a rough time on the earnings front".
World markets have witnessed more than a month of wild volatility after China devalued its yuan currency, fuelling worries about the state of the world's number-two economy and main driver of global growth as well as its leaders' crisis control.
The concerns have been exacerbated by a series of weak indicators suggesting growth will come in this year lower than 2014, which was the worst performance in a quarter of a century.