Asia Markets wrap

(ATF) Hong Kong: Financial markets have bounced back as the death rate has fallen in many countries and several countries have started to reopen their shuttered economies.

Japan’s Nikkei 225 added 1.05% after Prime Minister Shinzo Abe said the government was ready to take further steps to ease the economic pain from the coronavirus pandemic. Abe talked about taking “bold and timely action” but did not specify the size of the spending.

Meanwhile, Australia’s S&P ASX 200 added 1.3% and Hong Kong’s Hang Seng index rose 1.53%. The MSCI Asia Pacific index also climbed 0.73%.

China’s CSI300 benchmark ended flat despite the PBoC, the central bank’s Q1 monetary report published over the weekend saying more stimulus measures are in the pipeline.

“We expect continued monetary policy support to facilitate fiscal easing measures financed by larger government bond issuance in the coming quarter, in terms of an additional 20bps MLF rate cut, 50-75bps broad-based RRR cut (or equivalent), and continued implementation of PBoC re-lending,” said Morgan Stanley economists in a note.

“As it is, data showed a strong credit impulse with broad credit (TSF) growth reaching 12.2% YoY in April (versus 11.7% in March and 11% in December 2019), and we expect it to pick up by another 80bps to 13% YoY for the rest of this year.”

‘Second wave’ in the US, Korea

Still, investors are concerned about the second wave of infections in the United States and South Korea, where the government shut down all bars and clubs linked to a growing outbreak. The South Korean benchmark the Kospi index fell 0.54%.

Financial markets will monitor central bank and government responses this week to the rapidly deteriorating economic conditions. Last Friday, the US economy reported 20.5 million jobs were lost last month and unemployment rate jumped to 14.7%.

While this was better than analysts’ forecast of 22 million jobs lost and an unemployment rate of 16%, sentiment was rattled by Treasury Secretary Steven Mnuchin’s comments to Fox News that US unemployment numbers could get worse – and get close to the Great Depression levels of 25%.

And with bond markets outperforming the stock markets, there is a growing sense that more companies and governments will issue perpetual bonds to term out their debt.

“As governments via their ‘independent’ central banks edge closer to financial repression, one method of ‘kicking the can down the road’ is lower servicing cost via the issuance of perpetuals,” said Jefferies analysts in a note. “Ultimately, we think the country that will break new ground in ‘zero coupon’ perpetuals will be Japan in our view. The bottom line is that global equity investors must be prepared for the ‘benchmark’ 10-year government bond yield used as the risk-free rate to gradually increase in tenor, accompanied by further policies to repress rates.”

The credit markets were firm with the Asia IG index trading one basis point tighter at 116/118 while sovereign CDS moved in by 1-3 basis points. New issues are trickling back into the market with the three-tranche offering from Indonesia Asahan Aluminium getting orders of over $8 billion. Tuan Sing Holdings is meeting investors with the possibility of announcing a SGD-denominated Reg S bond offering.

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Asia Stocks

· Japan’s Nikkei 225 climbed 1.05%

· Australia’s S&P ASX 200 added 1.30%

· Hong Kong’s Hang Seng index advanced 1.53%

· China’s CSI300 dipped 0.01%

· The MSCI Asia Pacific index rose 0.65%.

Stock of the day

Tech giant Tencent rose as much as 4%, ending at the day’s high after its unit, the payment-based technology company Yeahka Ltd. refiled an application for an initial public offering in Hong Kong. Shares were also lifted by expectations of strong earnings when it reports its quarterly results on Wednesday.

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Umesh Desai

Umesh Desai is Asia Times Finance Editor. Prior to his current role he was at Reuters for 19 years before which he was a credit ratings and equity research analyst. A chartered accountant by training, he is based in Hong Kong.