(ATF) Hong Kong: Financial markets were on the backfoot on Thursday amid a continued rise in coronavirus cases and a downgrade in global GDP growth by the International Monetary Fund (IMF), sending investors scrambling for safe havens.
The IMF’s World Economic Outlook projected a global contraction of 4.9% this year, That's 1.9 percentage points lower than the April estimates. It warned that “the extent of the recent rebound in financial-market sentiment appears disconnected from shifts in underlying economic prospects.”
The Nikkei 225 dropped 1.22% and the S&P ASX 200 inched swooned 2.48%. The MSCI Asia Pacific index retreated 1.61% with markets in China and Hong Kong closed for a local holiday.
“The end of lockdowns in most of Asia has markets weighing the activity data for the wreckage left behind by the pandemic,” said ING Bank’s Senior Economist Prakash Sakpal in a note.
“The end of the worst quarter for Asian and global economies may be here. But, with second Covid-19 waves spreading in some countries and first-wave outbreaks not yet over in others, the economic slump has a long way to go.”
The negative economic data continues with the US expected to show about 1.3 million Americans signed up for unemployment benefits in the latest week. This is lower than 1.5 million last week but the pace of declines has slowed as weak demand forces US employers to lay off workers.
Safe havens benefited as gold rose 0.1% and US Treasury yields fell with the 10-year rate declining three basis points to 0.66%.
As normality returns in many economies across the region, analysts are concerned about a second wave of infections in countries where activity has resumed.
“South Korea, China and Japan face new clusters of infections, which has necessitated reimposing a few restrictions, but are steering clear of a complete lockdown,” said DBS economists in a note.
“For the ASEAN-6 countries, respective governments will be wary of letting their guard down, hence we expect a guarded approach to the reopening process, with close monitoring of the pandemic. Overall, region-wide GDP growth for 2020 is expected to average -2.2%, from 4.2% last year.”
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- Japan’s Nikkei 225 retreated 1.22%
- Australia’s S&P ASX 200 slumped 2.48%
- The MSCI Asia Pacific index eased 1.61%.
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