Market Close Dec 08

Investors pause as virus cases spike, US-China tensions high

Australia outperforms on business sentiment data; Yuan weakens but seen solid in 2021; Dollar’s secular decline to continue

Investors pause as virus cases spike, US-China tensions high
Senior nurse Dilhani Somaweera, right, administers an injection of the Pfizer-BioNTech Covid-19 vaccine to Kay Gallwey Chand, 84, at the Royal Free hospital in London on December 8, 2020 at the start of the UK's biggest ever vaccination programme. Britain hailed this as a turning point in the fight against the coronavirus pandemic. Photo: Jack Hill/ AFP.

(ATF) Hong Kong: Asian markets paused after the recent rally as the spike in coronavirus infections renewed worries about the economic impact from new restrictions, with US-China tensions also weighing on investor sentiment. 

Hong Kong on Tuesday became the latest to announce new measures as Chief Executive Carrie Lam urged people to stay at home and announced a batch of restrictions to contain the coronavirus.

Japan’s Nikkei 225 index fell 0.30%, Hong Kong’s Hang Seng index tumbled 0.76%, China’s CSI300 dipped 0.25% but Australia’s S&P ASX 200 edged up 0.19% after data showed improved business sentiment. Regionally, the MSCI Asia Pacific index inched lower by 0.12%.

The dollar edged up slightly with the currency trading 0.2% higher at 90.9 but the secular decline was seen extending its run.

“The US dollar has been in steady decline since the summer as the rebound in consumption has led to lower demand for USD liquidity and arguments for further USD weakness remain intact,” said Jefferies & Co analysts in a note.

“The correlation between the trade-weighted USD and the budget balance adjusted for the unemployment gap suggests that the USD could weaken further over the next two years.” 

The yuan weakened to 6.54 to a dollar but the dip was seen as temporary after the currency’s hefty 6.5% gain in the year to date. 

BlackRock said in its 2021 outlook that investors need to raise their China weightage in their portfolio as the world’s second largest economy opened up its capital markets further. 

Strategic holdings

“We see assets exposed to Chinese growth as core strategic holdings that are distinct from EM exposures. There is a clear case for greater portfolio allocations to China exposed assets for returns and diversification, in our view. We expect persistent inflows to Asian assets as many global investors remain underinvested and China’s weight in global indexes grows,” they said in a note.

All this pointed towards further strengthening of the Chinese currency with Jefferies & Co forecasting a level of 6.25 for the yuan in 2021.

Tensions between the world’s two biggest economies remain elevated after a report Washington is preparing to impose sanctions on some Chinese officials over their alleged role in Beijing’s disqualification of elected opposition legislators in Hong Kong. China has warned it will retaliate.

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Asia Stocks

· Japan’s Nikkei 225 index fell 0.30%

· Australia’s S&P ASX 200 edged up 0.19% 

· Hong Kong’s Hang Seng index tumbled 0.76%

· China’s CSI300 dipped 0.25%

· The MSCI Asia Pacific index inched lower by 0.12%.

Stock of the day

Auto company BYD Co. Ltd rose as much as 5% after it said that the China Securities Regulatory Commission (CSRC) had accepted its application of additional overseas share.

Asian markets coronavirus US-China tensions