Market Close Apr 28

Central banks' strategies, reopening of economies creating hope

Optimism is emerging as a growing number of governments talk about normalizing business activity and reopening their economies

Central banks' strategies, reopening of economies creating hope
A health official takes a swab sample from the throat of a girl at a coronavirus testing centre during a nationwide lockdown in New Delhi on April 27, 2020. Photo: Prakash Singh / AFP

HONG KONG: Financial markets were buoyant ahead of key earnings and central bank meetings as investors tiptoed back to the market. Optimism is emerging as a growing number of governments talk about normalizing business activity and reopening their economies. This comes on the heels of a decline in new cases of Covid-19 infections and lower fatalities in many countries.

The Korean Kospi benchmark rose 0.59%, while Hong Kong's benchmark Hang Seng index climbed 1.22% and the CSI 300 added 0.69%.

But the Nikkei 225 and the ASX 200 both dipped 0.1% as WTI prices dived 21% and Brent futures fell 4% on fears that the world is running out of oil storage capacity. Regionally, the MSCI Asia Pacific benchmark advanced 0.54%.

The European Central Bank sets policy on Thursday and markets will be keen to see if there is a further pledge to raise its asset purchase programme after it agreed last week to accept junk bonds as collateral for bank loans.

The Federal Reserve meeting is scheduled for April 28-29 – today and tomorrow – and although it is not expected to move on interest rates, financial markets will look for clues about how long rates will remain at these low levels and related asset purchase programmes.

The earnings season is focused on companies spelling out their business resumption plans and providing earnings visibility, as results are expected to be abysmal.

HSBC reported that its first-quarter profits halved after the coronavirus battered the global economy, despite central banks providing some respite in the form of reduced capital buffers and dividend stoppages.

“We are seeing all banks reporting an increase in loan loss provisions, which is negatively impacting their earnings, but generally not yet severe enough to affect capitalisation levels,” Elisabeth Rudman, Head of European Financial Institutions at DBRS Morningstar, said.

“Banks have very limited tools to offset the challenging operating environment currently. However, regulators have provided some flexibility to help banks keep lending throughout this difficult period, including by reducing capital buffers and requiring them to stop dividends. Also there are some business areas where banks have experienced relatively strong demand – eg. Corporates drawing down loan facilities, and some trading activities,” she said in an emailed reply to Asia Times Financial.

Alphabet, the parent of Google, will publish earnings later today, followed by Facebook and Microsoft on Wednesday and Amazon.com and Apple on Thursday. In the non-tech sector PepsiCo Inc, Caterpillar Inc. and Merck & Co Inc. will report later in the day.

In Asia, Chinese industrial profits slumped as the coronavirus outbreak suppressed earnings in China’s largest companies by 36% in Q1. Analysts said this has gloomy implications for the listed shares.

“First, trailing profit growth for the investable China share universe is likely to decelerate further, since service companies struggled in February and March even more than manufacturers and miners,” BCA Research analysts Mathieu Savary and Aneel Samra said.

“Second, the survey captures only companies with sales of CNY 20 million or more, and small companies are likely to have suffered more. This will affect the creditworthiness of many companies and could increase problems for the banking sector over the coming months,” the note from the macro research firm BCA said.

Meanwhile, China continues its digitisation programme with pilot programmes of China's central bank digital currency (CBDC) to start soon in selected regions, including Xiongan New Area in Hebei province. The trial run will focus on consumption scenarios such as catering and retail sales.

“We are positive on the long-term growth prospects of both initiatives, as we expect them to generate significant economic value over a period of time across industries like financial, healthcare, manufacturing, etc, and stimulate further innovation in China,” said UBS analyst Sundeep Gantori in a note, referring to China’s national digital currency and blockchain-related initiatives.

ATF China Bond 50 Index:

Also on Asia Times Financial

China's software, retail sectors decimated

China's 'Godfather of capital' urged to open the books 

Digital yuan trials to start soon

Foreign Exchange: Good day for risk, but not USD demand

Asia Stocks

·  Japan’s Nikkei 225 dipped 0.1%

·  Korea’s KOSPI rose 0.59%

· Australia’s S&P ASX 200 eased 0.1% 

·  Hong Kong’s Hang Seng index climbed 1.22%

·  China’s CSI300 advanced 0.69%

·  The MSCI Asia Pacific index added 0.54%.

Stock of the day 

Online platform China Literature rose as much as 18.9% after it reported a 45% surge in gross profit and 65% rise in revenue.