Santa Claus Rally

The rally lifting Asia-Pacific stock indexes to records during the second week of November may just be getting started. In 2005, Asian shares outside Japan had their biggest two-month advance in November and December. Anticipation of US consumers buying more holiday gifts and international funds flowing into the region has lifted prices this year.

Indexes in Australia, India, Singapore, Indonesia, and Sri Lanka reached all-time highs in second week of November. After rising 0.9% for the week, a Morgan Stanley Capital International Asia?Pacific stock index that excludes Japan is 0.3% away from its record set in May.

According to the Chong Sze King, trading manager at Asian Genesis Asset Management, the US outlook has set the stage for a Santa Claus rally in Asia. “Investors are buying in anticipation the markets this year will perform as they have historically,” he said.

Many Asian companies are benefiting from growing demand in the US, the largest buyer of Asian exports. Data compiled by Bloomberg shows that international investors have bought a net $117.8m of stocks so far in November in six emerging markets in the region. According to Citigroup, investors purchased more shares in Asian markets outside of Japan than they sold in November and December for the past four years.

Economic data released in November shows growth in the US is weathering a housing slump. The unemployment rate declined to a five-year low in October. The University of Michigan’s index of consumer confidence was at 92.3 in November after rising to 93.6 in October.

A National Retail Federation forecast says sales at US stores will rise 5% in November and December. While the estimate is below last year’s 6.1% growth, it is higher than the 10-year average of 4%. Data shows that the holiday period accounts for a fifth of US retailers’ sales and new products, especially in the technology sector, are likely to spur consumers spending globally.