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Summers out, optimism is in

Lawrence Summers, former U.S. Treasury secretary, speaks at the London School of Economics (LSE) in London on March 25. [BLOOMBERG]

The overnight news from Washington that former Treasury Secretary Lawrence Summers withdrew from consideration to be the next Federal Reserve chairman boosted the stock markets of Korea and other emerging countries.

Market analysts note that Summers’ withdrawal puts Fed Vice Chairwoman Janet Yellen in a more favorable position to succeed Chairman Ben S. Bernanke. Investors note that Yellen may favor a slower reduction in U.S. stimulus.

Yesterday, the Korean stock market closed almost 1 percent higher, with the benchmark Kospi up 0.96 percent, or 19.05 points, at 2,013.37.

The Fed’s Federal Open Market Committee meets today and tomorrow. There have been concerns that detailed plans for cutting quantitative easing would cause an outflow of foreign capital in emerging countries.

Financial Services Commission Chairman Shin Je-yoon told senior officials yesterday that although the country’s economic fundamentals remain strong, it should be prepared for any effects the FOMC meeting will have on the local financial market, according to Koh Seung-beom, secretary general at the FSC.

Along with a gain in Korean stocks, other emerging nations’ stocks rose. Singapore’s Straits Times Index jumped 1.9 percent, while Taiwan’s Taiex Index surged 1.4 percent. Hong Kong’s Hang Seng Index climbed 1.5 percent. Japanese markets were closed yesterday for a holiday. The MSCI Asia Pacific Index excluding Japan added 1.6 percent, heading for its highest close since May 30.

“It’s quite positive for equities,” said George Boubouras, Melbourne-based chief investment officer at Equity Trustees. “It puts Yellen back as the favorite. She’s more aligned to retaining accommodative policy and is seen as not being as brash as Summers might have been.”

Another candidate to replace Bernanke when his term ends Jan. 31 is Donald Kohn, a former Fed vice chairman.

Asian currencies also climbed to a five-week high against the greenback. The Bloomberg-JPMorgan Asia Dollar Index of the region’s 10 most used currencies excluding the yen increased 0.3 percent to the highest level since Aug. 12.

According to a Bloomberg Global Poll last week, Summers would tighten Fed policy more than Yellen. The Fed will probably trim its monthly bond-buying program by $10 billion ton $75 billion this week, a survey of economists showed this month.

“Summers’ withdrawal is positive for emerging markets as the Fed’s policy is expected to be less hawkish,” Sony Wibowo, a fund manager at Bahana TCW Asset Management. “The main concern if Summers had become chairman was that he would have withdrawn liquidity too fast.”

“I have reluctantly concluded that any possible confirmation process for me would be acrimonious and would not serve the interests of the Federal Reserve, the Administration, or ultimately, the interests of the nation’s ongoing recovery,” Summers wrote in a letter to President Barack Obama.

BY LEE EUN-JOO, BLOOMBERG [angie@joongang.co.kr]