Hong Kong: Investors are fired up by stimulus hopes as authorities target coronavirus-impaired businesses and consumers, while economic data shows early signs of improvement.
Even as US-China tensions continue to simmer, investors have been buoyed by slight improvements in data in Asia and Europe amid the easing of restrictions last month.
“After a slow start, some Asian economies are stepping up support,” Natixis Senior Economist Trinh D. Nguyen said in a note that highlighted India increasing fiscal support by 2.7% of GDP, the Philippines’ proposal for an additional $26 billion in stimulus and Indonesia adding $43 billion to soften the impact on SMEs.
“South Korea’s New Deal will create jobs and foster industries such as 5G and artificial intelligence,” she said.
Asian central banks have done more to ease liquidity shocks, from Bank Indonesia buying government bonds to the Bank of Thailand creating a corporate bond fund, Nguyen said.
“I expect the region to recover in 2021. Worsening demographics and rising debt as well as de-globalisation are key risks but also opportunities,” she said.
Rise in service sector activity
The latest PMI data for China published this morning showed the first increase in Chinese services activity for four months in May.
The seasonally adjusted Caixin China General Services Business Activity Index rose from 44.4 in April to 55.0 in May to signal the first rise in services activity since January. That is its highest level since October 2010.
The Caixin China Composite Output Index also jumped to 54.5 in May from 47.6 the month before, as output in both the manufacturing and service sectors expanded sharply.
“Companies were relatively optimistic about the economy’s forward momentum, and look forward to implementation of the policies announced during the annual session of China’s top legislature,” Wang Zhe, Senior Economist at Caixin Insight Group, said.
Japan’s Nikkei rose 1.29% amid the second phase of reopening in Asia’s second biggest economy – shutdown requests for movie theatres, gyms, and department stores with no history of unrest was lifted.
South Korea’s benchmark Kospi surged 2.87% after the government announced a 35.3 trillion won ($28.8 billion) supplementary budget and Australia’s S&P ASX 200 index climbed 1.83% even as Treasurer Josh Frydenberg confirmed on Wednesday that Australia was now in a recession, ending 29 years of growth.
“The upshot is that we think GDP will fall by a much larger 9% in Q2 before gradually firming up in the second half of this year,” Ben Udy, Australia & New Zealand Economist at Capital Economics, said.
Hang Seng also up
Meanwhile, Hong Kong’s Hang Seng benchmark climbed 1.37% and China’s mainland benchmark CSI300 was flat.
But credit markets surged with the Asia IG index moving in by 6bps to 92/94 and sovereign CDS 3-15 bps tighter. This has triggered a wave of issuance as yield-hungry investors piled in – Singtel, Chinese developers Kaisa Group and Yinchuan Tonglian are in the market with dollar bond offerings.
“We see non-Asian emerging markets bearing the brunt of defaults, followed by US high yield (HY) – especially energy – and then Europe and Asia HY. Asia comes last because China is a large part of Asia’s HY universe, and the strong stimulus has offered ample liquidity and credit availability, the biggest triggers of defaults,” Neeraj Seth, BlackRock Head of Asian Credit, said.
“We like China across the credit spectrum. In investment grade, we favour high quality strategic state-owned enterprises and select private companies; in high yield, the real estate sector, based on improving fundamentals.”
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Foreign Exchange: Dollar demand at 2-month low as Covid fades, yuan stable
· Japan’s Nikkei 225 climbed 1.29%
· Australia’s S&P ASX 200 advanced 1.83%
· Hong Kong’s Hang Seng index climbed 1.37%
· South Korea’s KOSPI jumped 2.87%
· The MSCI Asia Pacific index rose 1.15%.
Stock of the day
Hansoh Pharmaceuticals rose as much as 3.7% after it said a drug developed by the company had been granted a clinical trial notice issued by the National Medical Products Administration of the People’s Republic of China. The drug is intended to be used for the treatment of depression and other diseases.
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