China virus blights investor sentiment

Trade of the Day: Stocks crumble as virus spreads in China; gains by safe havens US Treasuries and Japanese yen; oil and gold weak

Quote of the Day: “Asia is in the midst of an investment malaise, with its contribution to growth dropping to a 20-year low. And, no, it’s not just China where investment as a share of GDP has drifted lower in recent years: this has occurred virtually across the entire region. The good news is that in some places, notably much of ASEAN, investment spending should tick up this year, driven in large part by extra government outlays on infrastructure,” said Frederic Neumann, an HSBC economist, in a note issued on Tuesday.

Stock of the Day:   Ping An Healthcare rose as much as 8.3% in a falling market as investors continue to chase stocks in the sector following the outbreak of the coronavirus in China.

Number of the Day:. $6.5 billion – The closing amount of Baring Private Equity Asia’s seventh private equity fund. It is one of the largest fundraising initiatives made by an Asian-headquartered private equity firm.

Tip of the Day:  “China Internet companies continue to make progress in Southeast Asia. Ecommerce is our most preferred sector, with entertainment and advertising expected to be driven by varying catalysts in 2020. Our top picks are (1) Alibaba and Tencent on dominant leadership; (2) JD, Meituan and PDD on embracing the ecommerce sector trend; (2) NetEase on entertainment reaping the rewards of strong R&D; (3) Baidu on benefiting from recovery in ad growth in 2H20; (4) Sea Ltd – in the sweet spot: capturing gaming and ecommerce opportunities outside China,” said Jefferies analyst Thomas Chong on Asia-Pacific and China internet market after he initiated coverage on 23 stocks.

Financial markets fell across Asia after the outbreak of a new strain of coronavirus in China hammered investor sentiment amid worries about its economic impact on trade, tourism and consumption. Underlining the seriousness of the development, the World Health Organization could declare an international public health emergency over the outbreak, after nearly 80 new confirmed cases of the virus that has so far killed six people, with more than 900 still under medical observation.

The MSCI Asia Pacific ex-Japan index tumbled 1.6%, Japan’s Nikkei 225 dropped 0.91% and Australia’s S&P ASX 200 fell 0.19%. The Hang Seng index swooned 2.81%, as the Hong Kong benchmark was dealt a double whammy following a downgrade by international rating agency Moody’s , with sectors like consumer cyclicals, property and insurance hit the hardest. The healthcare sector and companies perceived to obtain more business in the wake of the outbreak have outperformed.

European stocks also fell with the Stoxx Europe 600 index down 0.7% and futures on the S&P 500 index down 0.3% indicating a weak start when Wall Street reopens after the long weekend.

The rating agency was critical of the government’s lack of a plan to end the seven-month-old state of unrest in the city that has dragged the territory into a technical recession, with the economy estimated to have contracted last year, the first time since 2009.

“The absence of tangible plans to address either the political or economic and social concerns of the Hong Kong population that have come to the fore in the past nine months may reflect weaker inherent institutional capacity than Moody’s had previously assessed.”

Some of the sting was taken off by the upgrade in China’s economy. The IMF raised its growth forecast for China by 0.2% to 6%. Gita Gopinath, chief economist, also raised global growth to increase modestly from 2.9% in 2019 to 3.3% in 2020 and 3.4% in 2021.