Market Close Oct 30

Investors de-risk portfolios ahead of US vote

Yuan strengthens on hopes of a Biden win; China reforms wave seen after plenum ends; Dollar extends fall

Investors de-risk portfolios ahead of US vote
People walk past a branch of Industrial and Commercial Bank of China (ICBC) in Beijing in this file photo from April 1, 2019. Analysts say China's big state lenders will see bad loan pressures persist in coming quarters as some borrowers face difficulties in repaying loans after months of inactivity. File photo from April 2019 by Florence Lo/Reuters. 

(ATF) Hong Kong: Asian markets sold off on Friday as investors sought to reduce 'risky' stocks in their portfolios ahead of the US Presidential election early next week and as European nations grappled with a renewed coronavirus outbreak.  

The global coronavirus infection count hit a new peak of over half a million cases in a single day. Europe’s new daily infections have doubled over the past two weeks as EU states reported more than 250,000 cases for the first time on Wednesday, according to a Reuters tally. 

Japan’s Nikkei 225 index retreated 1.52%, Australia’s S&P ASX 200 eased 0.55%, Hong Kong’s Hang Seng index slid 2.09% and China’s CSI300 reversed 1.03%. Regionally, the MSCI Asia Pacific index tumbled 1.39%.

Even as the global economy grappled with the pandemic, with the infection count rising past the 45 million mark with over 1.2 million dead, nervousness was heightened by the US elections next week.

“From a fiscal perspective, we believe that both a second Trump term and a Biden administration would pursue fiscal spending as a priority in 2021 which should be near-term supportive to markets,” Norman Villamin, CIO (Wealth Management) at Union Bancaire Privée, said.

“Under either a Biden or second Trump administration, we expect large fiscal stimulus matched by substantial Fed purchases of the debt issued. This should be a catalyst to the next leg of the ongoing US dollar bear market.”

Dollar down, gold up 

The US dollar against a basket of currencies weakened marginally to below 94. It has weakened over 4% in the past six months.

Gold prices benefited rising 0.3% to $1,872 per ounce. Gold has strengthened over 10% in the past six months.

Overnight, data showed the US economy expanded 33.1% in the third quarter which US President Donald Trump called “the best number by far in our country’s history”.

But analysts were sceptical. 

“Q3’s 33.1% annualized increase in real GDP needs to be weighed against Q2’s 31.4% decline and Q1’s 5% drop. Overall, real GDP remains about 3.5% below its pre-Covid-19 level and is down 2.9% compared to the third quarter of last year,” analysts at macro research firm BCA Research said.

“But in reality, the GDP release didn’t reveal much about the economic recovery that wasn’t already widely known.”

Expectations that Democrat Joe Biden could win the US elections gave a further boost to the yuan, which rose 0.5% to 6.67 to a dollar. The yuan is up almost 7.5% against the dollar since lows in late May.

Yuan up, CCP to focus on quality growth 

China’s Communist Party’s Central Committee unveiled a communique after a four-day meeting, which focused on quality of economic growth and its technology ambitions. There are expectations Beijing will embark on a drive towards high-quality growth through innovation and reform. 

“We expect Beijing to speed up on reforms on urban household registration and rural land transfer to boost household consumption in both urban and rural areas. More tax cuts and lower barriers to entry for private sector corporates will also be key to boosting overall investment in China in our view,” said Qu Hongbin, HSBC’s Co-Head of Asian Economic Research and Chief China Economist. 

“We believe more measures will be rolled out in the coming years to deepen China's trade and corporation with other countries. We will likely see more details on reforms and opening up measures in the coming weeks.”

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Asia Stocks

· Japan’s Nikkei 225 index retreated 1.52%

· Australia’s S&P ASX 200 eased 0.55% 

· Hong Kong’s Hang Seng index slid 2.09%

· China’s CSI300 reversed 1.03%

· The MSCI Asia Pacific index tumbled 1.39%.

Stock of the day

LG Chemicals fell as much as 6.1% after it got shareholder approval to split the company with the aim of listing its battery division. It will supply electric vehicle batteries to Tesla and General Motors. No compensation would be offered to existing shareholders and some investors felt the split would reduce the company’s value. 

Asian markets Investors cut risk Yuan up Dollar down Covid in EU LG Chemicals