AIG Rescue Triggers Asian Stocks, Oil Surge

Asian stocks surged while oil went up $3 per barrel on Wednesday as the Federal Reserve launched a dramatic rescue of American International Group, the latest company that fell victim to the intensifying financial crisis.

Fed Rescue Sends Investors on Buy-back Frenzy

After news that the Fed will bailout the beleaguered insurer, investors immediately bought equities while selling bonds and Yen.  Investors heavily accumulated bonds and Yen after Lehman’s filing for bankruptcy.  The rally however was a bit sluggish across Asia as fears on the situation of the banking sector continue to hound the market.

Fear was prevalent in the market as banks hoard US Dollars showing a lot of distrust in the market rather than confidence.  

The Federal Reserve effectively diffused a potential collapse of AIG as it extended $85 billion bail out loan but taken almost 80 percent stake in the company.  After Freddie Mae and Freddie Mac, the latest rescue of the US government on American International Group significantly burdened American taxpayers.

US Move Surprises Everyone

The US government’s decision to rescue AIG was a surprise to everybody as it allowed Lehman Brothers to collapse a few days ago.  The move indicates that all market participant even the policy makers are being forced to become flexible.

Peter Hilton of the Royal Bank of Scotland in Hong Kong said the market will improve on the day as pressures on consumers and investors have been relieved.  Hilton however added that the relief came after an excruciating rough week.

Japan’s Nikkei averages went up by 2.1 percent after suffering a three-year low on Tuesday.  Shares of Mitsubishi UFJ Financial, Japan’s top bank, went up by 1.5 percent.

The MSCI Asia Pacific index went up by 1 percent at the close.  The index suffered a two year low on Tuesday and recorded a 36 percent downturn for this year.  

Hang Seng index of Hong Kong rallied earlier in the day but the surge fizzled out as it closed 0.8 percent lower.  The burnout was due to lingering fears of the banking sector’s weakness.  HSBC, Europe’s largest lender, placed significant drag on the index closely followed by China Construction Bank.

Changing Landscape of Banking Sector

AIG’s bailout changed the landscape of the US banking sector as it marked a major turning point in the continuing tumult in the financial sector.  On Monday, Merrill Lynch was bought by the Bank of America for $50 billion.

Investors literally pulled down the All-country World index as they flee from anything that smacks of risks.  The world index skidded to its lowest since December 2005.  The jitters were primarily triggered by the developments on AIG as fears of intensifying defaults in the global credit market continue to heighten.