Trade of the Day: Stocks remain under pressure amid virus’s geographical spread; yen, gold, US Treasuries soar.
Quote of the Day: “Changes in trading relationships, politics, and governance have complicated China’s transition to a developed economy. The result could be Japanese-style stagnation or emerging-market-style instability, in which falling productivity growth and lower capital investment lead to much lower growth. On the other hand, US-China tensions could prompt Chinese leaders to pursue reforms and greater economic productivity,” said Qian Wang, Vanguard’s Asia-Pacific chief economist.
Stock of the Day: Wheelock and Co rose as much as 50.2% after it announced a privatization plan under which shareholders would get one share each in Wharf REIC and in Wharf, plus a scheme payment of HK$12 per share. “The Proposal aims to unlock immediate value for Shareholders through the elimination of the Company’s historical holding company discount associated with the existing tiered shareholding structure as Wharf REIC Shares and Wharf Shares will upon completion of the Proposal be held directly by the Scheme Shareholders,” it said in a statement.
Number of the Day:. 33 Gigatons – initial estimates for energy-related CO2 emissions in 2019, unchanged from the previous year. “Concerns about the economic impact of global warming are rising quickly, but so far the world has failed to reduce its greenhouse gas emissions,” said a report from Oxford Economics titled “An elusive revolution required to mitigate global warming.”
Tip of the Day: “Construction activity will improve with or without stimulus: Chinese construction sector and rail equipment makers rallied strongly today on higher than normal turnover on the expectation of faster resumption of activity and potential stimulus policy. HK-listed construction companies are trading at similar valuations to that of 2H11 when railway projects were suspended. However, earnings growth and cash flows are better than in that period. We are positive on Chinese construction companies and rail equipment makers. We upgrade China Communications Construction Company (1800 HK) to Buy from Hold,” said HSBC in a note while reiterating its buy rating on China Railway Group, CRCC, CSCI , CRRC and Zhuzhou CRRC with a target price that would imply gains of 30%-100% from the current price levels.
Financial markets continued to reel from the coronavirus’s geographically expansion with nearly 50 countries now reporting outbreaks. Japan’s Nikkei 225 dropped 2.1%, Australia’s S&P ASX 200 slid 0.75% and South Korea’s was down 1.1%. However, China’s mainland markets recovered with the CSI 300 up 0.3% and the SSE Composite index edging up 0.1%. Hong Kong’s Hang Seng index was up 0.3% boosted by basic materials, healthcare and banks. This together helped lift the MSCI Asia Pacific ex-Japan index by 0.6%.
But Europe and US markets are set for another bleak session with the Stoxx Europe 600 down 2.5% and S&P Futures off 1%.
Concerns have heightened after Peter Marks, director of the FDA’s Center for Biologics Evaluation and Research, said in an interview, “We have to be alert to the possibility of a pandemic.” Marks said he is watching to see if the number of cases in Western Europe and South America surge, as has happened in Italy and South Korea.
Markets are beginning to factor in a more dovish US Federal Reserve with rate cut expectations now starting to grow. “We now expect the FOMC to ease at its 29 April and 10 June meetings (on hold, prior) in response to the risk that coronavirus disrupts US and global activity, taking the Fed funds rate (upper bound) to 1.25% by end-Q2 and end-2020 (previously 1.75%) and 0.75% by end-2021 (previously 1.25%),” said Steve Englander, head of G10 FX Research at Standard Chartered Bank.
Fed Futures are fully pricing in a rate cut at the central bank’s April meeting and two more through the remainder of the year.
Credit markets are expected to stay busy as issuers take advantage of the rate environment. Guangzhou R&F is out with a tender offer which will extend its debt maturity profile and India’s REC is looking to issue RegS/144A notes. Lodha Developers and Road King Infrastructure also joined the queue of bond issuers as investors put money to work even as China began to resume economic activity at a slow pace. Morgan Stanley said in a report that China’s power coal consumption had risen 3% day on day and “return to work traffic” had also picked up 3.3% day on day, while five more provincial level regions had lowered emergency response levels.