Market Close Jun 12

Investors worry about second wave of infections

Equities tumble but second round seen less deadly; US economy to stay open even if infections rebound; Oil slips on demand worries  

Investors worry about second wave of infections
A statue of Confederate States President Jefferson Davis lies on the street after protesters pulled it down in Richmond, Virginia, on June 10, 2020. Authorities in the US have a lot more than just economic woes to counter at the moment. Photo: Parker Michels-Boyce / AFP

(ATF) HONG KONG: Investors dumped risky assets amid fears an emerging second round of coronavirus infections was about to risk the nascent rebound in the global economy.

The worries emerged even as US Treasury Secretary Steven Mnuchin said the US economy would stay open even during a second wave of the virus, while noting that “you're going to create more damage”.

But analysts said the sell-off was expected to be short-lived as the resurgence in the pandemic was unlikely to be as devastating.

“With economies around the world progressively re-opening, the rising odds that the second wave of infections will not be as deadly as the first one, and the bulked-up fiscal stimulus around the world, easy monetary policy should add a supplementary tonic to the recovery,” macro research firm BCA Research said in a note.

“Already, interest-sensitive economic variables, such as mortgage applications for purchases are bouncing smartly. Moreover, consumer and business confidence are also rebounding. An economic recovery will support the earnings outlook, and thus, stock prices.”

Most indexes down

Japan’s Nikkei index tumbled 0.75%, Australia’s S&P/ASX benchmark retreated 1.89% and Hong Kong’s Hang Seng index ended 0.73% lower. China’s mainland benchmark the CSI300 bucked the trend and edged up 0.18%. Regionally the MSCI Asia Pacific index fell 1.4%.

Oil prices tumbled as investors worried about falling energy demand. West Texas Intermediate crude declined 1.3% and Brent crude slid 2.5%.

Australia underperformed the region as its diplomatic spat with China intensified. Chinese foreign ministry spokeswoman Hua Chunying struck back with fresh warnings on travelling and studying Down Under, after Australian Prime Minister Scott Morrison criticised Beijing’s earlier warning about racist attacks on Asians. Canberra angered Beijing initially by calling for an independent inquiry into the origin of the coronavirus, which was first detected in the Chinese city of Wuhan.

Credit markets continue to ease as markets digest the recent spate of issuance with the Asia IG index wider by 3 basis point at 91/93 bps. Sovereign CDS was 2-12bps wider. Still, Wynn Macau issued price guidance for 144A/Reg S bonds due to price today.

In the week ahead, industrial production and retail sales data for the US and China will drive investor sentiment as markets look for manufacturing and consumer trends in the world’s two largest economies.

“Industrial production and retail sales data for the US are updated for May, and will be eagerly awaited for confirmation that the worst of the economic downturn from the pandemic has passed,” Chris Williamson, chief business economist at IHS Markit said.

“In Asia, the focus is on China with production and retail sales data eagerly awaited to assess the extent to which economic activity may be recovering after the relatively early relaxation of virus restrictions. Surveys show domestic demand driving the rebound in China, with trade dragging.”

Also on Asia Times Financial:

China bond market rollercoaster likely to continue 

 US economy to stay open even in second virus wave

Hong Kongers rush to secure limited British passports 

Foreign Exchange:

Asia Stocks

· Japan’s Nikkei 225 falls 0.75%

· Australia’s S&P ASX 200 dropped 1.89% 

· Hong Kong’s Hang Seng index retreated 0.73%

· China’s CSI300 edged up 0.18%

· The MSCI Asia Pacific index slipped 1.4%.

Stock of the day 

Medical device company Shandong Weigao Group rose as much as 4.25% in a weak market after it announced its proposal to spin-off and separately list the ordinary shares of Weigao Ortho on the science and technology innovation board on the Shanghai Stock Exchange.