Markets Feb 19

China stimulus hopes embolden risk-takers

Stocks, futures and oil rise as Asian giant signals new relief for virus-hit economy; yen and US Treasuries retreat.

by Umesh Desai
China stimulus hopes emboldens risk-takers
A man cycles past a closed Apple store in Beijing. Photo: AFP / Greg Baker

Asia Times (Feb. 19) – Trade of the Day: Stocks, futures and oil rise on stimulus hopes; yen and US Treasuries retreat.

Quote of the Day: “It seems that we are getting better news every day on COVID-19, but let’s give it a few more days to call a turning point because tens of millions of workers (around 70%) are yet to return to cities for work. Business resumption rate, if we take into account the capacity utilization, should still be below 40% on average,” said Ting Lu, chief China economist at Nomura.

Stock of the Day: Ausnutria Dairy  jumped as much as 12.3% after it said profits would rise by as much as 62% in 2019. The company said in a statement that “such increase was spurred by better brand awareness and acceptance of the Group’s goat and cow brands in the market; the implementation of the Group’s strategic plans, in particular, continuous improvement of the upstream operational efficiency, streamlining of the global supply chain and enhancement in the product mix; and the improvement in business structure as a result of the rising proportion of the sales of the Group’s own branded goat and cow milk formula products. ”         

Number of the Day: 114% – Frontier market debt as a proportion of GDP reached an all-time high, according to the Institute of International Finance. Government debt remains the single most significant driver for most frontier economies. At above 51% of GDP, government debt is over five percentage points higher than in 2015,” it said.

Tip of the Day:  The facemask is like a “shield” against the virus. In your investment portfolio, there are also risk management techniques that, very much like a facemask in real life, we can deploy in fighting against market volatility. For example, reducing currencies with high risks (such as Asian currencies) and replacing that with perceived “safe-haven” currencies (such as the US dollar or Japanese yen) is one of such “facemasks” in the investment world,” said Ricky Tang, Schroders deputy head of multi-asset product, North Asia.

Financial markets strode ahead, confident that the virus count would decline and on the hopes of economic relief as more indications of stimulus emerged. According to China’s National Health Commission, there were 1,693 new cases reported in Hubei on Tuesday, the epicenter of the epidemic. This is a decline from the previous day’s 1,807 and 1,933 on Sunday.

“Incoming information suggests that China’s production may return to normal in March after an extended pause. The spread of the coronavirus appears to have slowed, “ said Standard Chartered economists in a note. “An increasing number of factories have resumed operations, and production may return to more than 80% of the normal level by end-February.”

But they added that the longer-than-expected delay in restarting business after the Lunar New Year holidays has already inflicted substantial economic losses while lowering Q1 growth forecast to 2.8% from the previous 4.5%. Still, the hit to the entire year’s growth forecast is small as they pared it to 5.5% from 5.8% – this was primarily because of the mild upward revisions to Q2 and Q3 forecasts.

There are hopes of a rebound later in the year and financial markets are also banking on stimulus efforts from Beijing, with Chinese Premier Li Keqiang assuring support to enterprises to stabilize employment. Bloomberg reported that China is planning direct cash infusions and mergers to bail out the airline industry. Analysts have started cutting their earnings estimates for airline stocks as the travel ban forces reductions in flights, lowering revenues.

MSCI Asia Pacific ex-Japan rose 0.52%, Nikkei 225 climbed 0.89% and Australia’s S&P ASX 200 added 0.43%. The Hang Seng index advanced 0.46% as property, consumer non-cyclicals and telecom sectors boosted the Hong Kong benchmark.

European stocks and US futures built on Asia’s gains with the Stoxx Europe 600 Index rising 0.6% and the S&P 500 futures edging up 0.2%