Markets Apr 02

Asian markets spooked by rising coronavirus toll

Investors concerned about a second wave of infections in China and weak manufacturing data

Asian markets spooked by rising coronavirus toll
Manufacturing data has been weak and a new report claims China concealed the extent of the coronavirus. Photo: AFP

(ATF) Asian markets remained defensive after a string of weak manufacturing data stoked earnings concerns and as the relentless spread of the coronavirus indicated a much higher human toll in future.

Investors remain concerned about a second wave of infections in China with worries remaining elevated after Bloomberg News reported Beijing concealed the extent of the coronavirus outbreak in its country. 

Japan’s Nikkei 225 is down 1.57%, the Hang Seng index is off 0.94% and Korea’s Kospi index edged 0.57% lower. Australia’s S&P ASX 200 has slid 2.5% and the MSCI Asia-Pacific ex-Japan benchmark has retreated 0.82%.

The string of horrific economic data unleashed overnight continued to hit US markets with the world’s biggest economy reporting light vehicle sales in March, down 27%, while private payrolls posted the first drop since 2017 and IHS Markit's Manufacturing PMI for the US fell to 48.5 in March from 50.7 in February. This reading came in worse than the previous estimate and the market expectation of 49.2.

“However, this is very much the calm before the storm. Even though the service sector will bear the brunt of the hit from the lockdowns now in place, manufacturing confidence looks set to fall considerably further this coming month,” Rupert Thompson, Chief Investment Officer at wealth management group Kingswood, said. 

As the corporate results season draws near investors are bracing for earnings shocks with S&P 500 firms, expected to enter an earnings recession in 2020, falling 3.7% in the first quarter and 9.6% in the second, Reuters News estimated.

And yet investors are optimistic despite the sense that US is lagging European and Asian countries in batting the coronavirus pandemic with infections in America topping 215,000 as the global count approaches the million mark.

“It virtually guarantees horrific infections rate and death headlines, as well economic weakness and earnings collapse reports. Despite this, we expect US stocks to perform better than the rest of the world,” Marija Veitmane, senior multi-asset class strategist at State Street Global Markets, said.

“The nature of the US stocks is the key to that outperformance. US stock indices have higher than average allocation to Technology and Health Care sectors – the two best performing sectors this year. Consequently, it has lower weighting in Energy and Financial sectors - the weakest so far. Also, US stocks on average have much stronger balance sheets and profitability, which should make them a relative(!) safe haven now.”

Overnight, all three US stock indexes fell by over 4% following the wave of tepid economic data.

This follows weak PMI data across Europe with the Eurozone reading falling for a 16th successive monthly fall, reporting its lowest since mid-2012.