Market Close Apr 27

Bank of Japan support brings cheer 

BoJ’s unlimited bond purchase plan spurs risk-taking; European Central Bank seen doing more on Thursday; Asian credit market pipeline gets flowing

Bank of Japan support brings cheer
Employees resume work at the SEVEL (European Light Vehicle Company) car factory in Atessa, south of Pescara, Italy, after the government laid out partial reopening plans, during the country's lockdown. SEVEL is a 50-50 joint venture between Fiat Chrysler Automobile and French car manufacturer PSA Group. Handout / FIAT CHRYSLER AUTOMOBILES PRESS OFFICE / AFP

Hong Kong: Financial markets received a boost from the Bank of Japan’s pledge to buy unlimited government securities even as the infection count began to show signs of plateauing.

The BoJ move accompanied a downward GDP revision. The central bank now expects the economy to shrink 3-5% compared with the earlier 1.1% forecast.

The Nikkei 225 rose 2.71% as the central bank agreed to expand its balance sheet further cheering investors.

More central bank support is expected in the weekahead at the European Central Bank meeting this Thursday and this is also keeping investors optimistic. Markets expect the central bank to do more to allay debt sustainability concerns and that could include allowing the ECB to buy "junk"-rated debt under its QE programmes, something that it has ruled out until now. 

The Stoxx Europe 600 climbed 1.7% and S&P Futures are 1% higher.

Elsewhere, the broad sentiment remained cautiously optimistic as investors awaited a rash of earnings announcements and economic data in the week ahead. The Hang Seng index added 1.88%, Korea’s Kospi benchmark advanced 1.79% and China’s main stocks benchmark the CSI 300 rose 0.68% even as data showed profits at China’s largest companies fell by 36% in Q1.  

The Bank of Japan said that in conducting the outright purchases of Japanese government securities in a flexible manner it may set “the purchase size per auction to a fixed amount or to an unlimited amount.” The central bank also said it will buy more corporate bonds and commercial paper boosting its total holdings of both asset classes to 20 trillion yen from 5 trillion, while keeping policy rates unchanged at -0.1%. 

“With the economy contracting and global yields at low levels, there is very little reason for the 10y JGB yield to move higher. In fact, according to estimates, even if the BoJ does not increase its JGB holdings in FY2020, the 10y yield is still likely to stay negative despite net JGB issuance increasing by about 20 trillion to 58.2 trillion yen in FY 2020,” said HSBC economists James Lee and Ki-Hyuk Lee in a note.

Credit markets were positive as yield seeking investors helped get the primary issuance pipeline flowing with the Philippines sovereign government, Korea East West Power, Hong Kong’s Wharf Real Estate and Indonesian borrower Hutama Karya pushing ahead their debt raising plans. 

Asia Stocks

· Japan’s Nikkei 225 jumped 2.71%

· Australia’s S&P ASX 200 added 1.5% 

· Hong Kong’s Hang Seng index advanced 1.88%

· China’s CSI300 rose 0.68%

· The MSCI Asia Pacific index climbed 2.22%.

Stock of the day 

CanSino Biologics rose after it said in a notice to the stock exchange, that it had submitted the pre-clinical trial application meeting request to Health Canada for Recombinant Novel Coronavirus Disease Vaccine and Health Canada had accepted the pre-CTA Meeting Request. “The Company plans to conduct clinical trial for Ad5-nCoV with partners in Canada after the clinical trial application is approved,” it said in a notice.