The Hang Seng Index scaled a two-year high yesterday as investors loaded up on stocks amid last-minute speculation about the expected announcement of a long-awaited stimulus plan in the United States.
The benchmark climbed 2 per cent, or 473.25 points, to 24,144.67. Only two of the 45 constituent blue chips finished down.
The Federal Reserve was poised to announce details yesterday in the US about another round of quantitative easing, referred to as QE2. Investment banks have estimated the size of the central bank's asset purchase scheme could ultimately range between US$1 trillion and US$2 trillion.
'Sentiment is quite buoyant because investors expect the QE2 scale [may] be in line with expectations or higher than expectations and that may continue to keep the US dollar on the weak side,' said Ben Kwong Man-bun, chief operating officer of securities firm KGI Asia. 'A weak US dollar will direct fund flows into emerging markets, leading to higher asset prices.'
QE2 should provide impetus for a further devaluation of the dollar because it will increase the supply of it in the market. A weaker US currency may prompt investors to reallocate funds to emerging markets where currencies are appreciating and it could also inflate prices of dollar-denominated assets like commodities.
The dollar has already dipped to a 15-year low against the yen this week, trading at 80.22 yen on Monday, according to Bloomberg.
