Hong Kong: Investors appear more optimistic that the reopening of economies will take the sting off the bad run of economic data, as oil stabilized and equities were broadly higher. Earnings continue to be mixed and markets are cautious about the tensions between the world’s two biggest economies.

European stocks are firm, building on Asia’s gains with US futures indicating a firm start at Wall Street. The Stoxx Europe 600 edged up 0.2% and S&P Futures are up 0.6% following MSCI Asia ex-Japan’s 0.75% rise.

Credit markets remain on firm ground as central banks across the world are seen keeping rates at record lows, triggering the hunt for yield income amongst investors. Asia IG series 33 index was half a basis point tighter at 119/121. Sovereign CDS have moved in by 3-5 bps with Indonesia shrinking by 5 basis points at 211/216. Sun Hung Kai and Sinopec bond offerings narrowed their price indications after drawing solid demand. Sun Hung Kai’s final price guidance of 210 basis points over US Treasuries was 50 bps tighter and state-owned Sinopec’s 3-trancher is also expected to price tighter than the initial guidance after orders exceeded $7.5 billion.

“In this flight to quality, bonds remain a place where investors park the money on fixed income credentials. Asian credits performed quite in-line with the US comps during the height of Covid-19 and Asian credits remain cheap vis-a-vis US comps with similar ratings,” said Warut Promboon, CEO at Bondcritic, an independent research firm.

“We prefer quasi-sovereign and state-owned enterprises with majority ownership by the state and with businesses considered systemically important to certain countries. There are also certain ‘national champions’ like Country Garden in China, where its presence is of national importance and we expect the fundamentals to remain robust.”

Mainland China stocks recovered from earlier losses to finish 0.61% higher, the Hang Seng index added 1.13% and Korea’s Kospi index jumped 1.76%. Hong Kong’s pledge to relax the virus restrictions starting Friday and South Korea’s easing of social distancing rules beginning Wednesday lifted sentiment. And even as US President Donald Trump pushed the country to reopen, caution abounded.

War of words

Markets are tracking closely the war of words between United States and China. US President Donald Trump’s accusation that Beijing deliberately mishandled the outbreak and Secretary of State Michael Pompeo’s claim to have “enormous evidence” that the coronavirus outbreak sprung from a Chinese lab was met with strong retaliatory comments. China’s official Xinhua News Agency said Pompeo was speaking “nonsense” and a newscaster from state-run China Central Television accused him of “sitting poison”.

Investment manager Vanguard said renewed containment efforts in countries such as Japan and Singapore, which had early success in containing the coronavirus through vigorous testing and tracking, is a reminder the battle may not be over until a vaccine is developed or broad populations achieve immunity.

“The strength of eventual recovery will depend in large part on the duration of required containment measures, the depth and breadth of unemployment, and the extent to which consumers overcome lingering fear of resuming normal activities,” the firm said in a note.

“It will be crucial to avert a second wave of infection and associated renewed containment efforts that could carry long beyond the second quarter.”

ATF China Bond 50 Index: China bonds bounce back from holiday

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Asia Stocks

· Australia’s S&P ASX 200 eased 0.42% 

· Korea’s Kospi benchmark jumped 1.76%

· Hong Kong’s Hang Seng index rose 1.13%

· China’s CSI300 climbed 0.61%

· The MSCI Asia Pacific index added 0.76%.

Stock of the day 

Semiconductor Manufacturing International Corp rose as much as 12% after it announced plans to list on the Science and Technology Innovation Board. The Sci-Tech Innovation Board is a new trading platform in the Shanghai Stock Exchange (SSE), independent from the existing main board, and focuses on companies in high-tech and strategically emerging sectors.

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