Trade of the Day: Stocks and commodities climb; gold, yen and US Treasuries weaken.
Quote of the Day: ““We started 2020 with a cautious view on valuations in global credit markets, and we continue to de-risk portfolios. China, in particular, is likely to remain in risk-off mode for some time, with rates outperforming credits. The credit risk/reward ratio is now even less compelling than it was, due to slower China growth and the impact of the virus on global supply chains,” said Steve Ellis, Fidelity International Global CIO, fixed income. Chinese issuers have dominated the Asia hard currency bond pipeline as dovish central banks and improving economic outlooks have sparked the hunt for yields.
Stock of the day: Hong Kong Television Network fell as much as 14% after the company placed shares at a discount of 15% of the previous day’s closing price. The funds raised were to strengthen the group’s financial position and for the long-term funding of its expansion and growth plan, the company said in a statement. “Moreover, the directors consider that it is in the interests of the company to broaden the shareholder base and the capital base of the company,” it said.
Number of the Day: 99%. The drop in SoftBank’s quarterly operating profit after its Vision Fund recorded a $2 billion loss. The Japanese tech conglomerate is under additional pressure from activist hedge fund Elliott which is pressing SoftBank for a $20 billion share buyback and governance changes after building a $2.5 billion stake.
Tip of the Day: “While the hit on GDP growth (from the coronavirus) may be smaller for North Asia versus Vietnam’s, the actual economic value of the supply chain disruption is most profound for Japan, South Korea and Taiwan due to their larger size and more integrated supply chain in both mainland China and Southeast Asia as well as sectoral dependency on Chinese inputs,” said economists at Natixis in a note published on Wednesday.
Investors loaded up on risky assets after signs emerged the coronavirus spread may be slowing and the hit to the global economy will be brief. China’s Hubei province reported the lowest number of new virus cases this month and suspected infections on the mainland fell. That sparked buying into stocks and selling in safe havens like the yen, US Treasuries and gold. Oil prices also rose on hopes that consumption will push up demand while output cuts by major producers will curtail supply. Brent crude prices rose 2%.
MSCI Asia Pacific ex-Japan index rose 0.74%, Australia’s S&P ASX 200 index climbed 0.47% and Japan’s Nikkei rallied 0.74% on expectations of a resurgence in Chinese demand. Hong Kong’s Hang Seng index jumped 0.87% boosted by consumer cyclicals, basic materials and energy shares.
Stoxx Europe 600 has climbed 0.5% and S&P Futures are 0.4% higher as signs of the retreating virus encouraged investors to tiptoe back into the market.
Still, there are worries about the economic impact of the coronavirus, which has forced travel restrictions, hurt manufacturing activity and disrupted supply chains.
Federal Reserve Bank of St Louis President James Bullard said China will “grow noticeably slower” in first quarter due to the virus. Even as China’s factories reopened for business following the extended Lunar New Year break, signs are emerging that things are yet to normalize.
Morgan Stanley said in a report that daily power coal consumption of six major power generation groups remained flat on February 11.
“Power coal consumption volume was still only ~50% of pre-LNY levels; it reached 80-90% at this point during normal years. February 17-20 could be the next crucial period to watch based on production resumption plans released by selected local authorities and enterprises,” it said in a report while pointing out other indications that there were few signs of a “return to work” travel rush.
Chinese Lunar New Year holiday travel is the largest human migration event on earth.