Market Close Jul 13

Market boosted by China credit expansion, GDP hopes

China credit expansion a harbinger for global industrial cycle; Vaccine expectations lift mood; Recovery in low rate environment triggers yield search 

Market boosted by China credit expansion, GDP hopes
A photo taken on Sunday July 12, 2020 shows residents standing before an inundated pavilion in the swollen Yangtze River in Wuhan in China's central Hubei province. Central and southern China have been hit by continuous downpours since June, and the damage is adding pressure to a domestic economy already hit by the coronavirus. Photo: STR / AFP.

(ATF) Hong Kong: Asian markets received a boost from strong Chinese data at the weekend which raised expectations that the world’s second biggest economy was on the path to recovery, with optimism that there would be positive news once the earnings season kicks off next week.

JPMorgan analysts said the Chinese economy has continued to track a V-shaped recovery, following the pick-up in total social financing and this week’s 2Q GDP report and June activity indicators should confirm.

“We expect the economy to show a significant rebound of 48.8% quarter-on-quarter, saar (or +1.8% on-year) in 2Q, with the risk bias tilted modestly to the upside,” said Sin Beng Ong, an economist at JPMorgan Chase Bank.

“In particular, the further pickup in the June PMI readings, especially the jump of the Markit service PMI to the highest level in more than a decade, not only suggests ongoing solid momentum in manufacturing activity, but also hints at a broadening of the recovery to the non-manufacturing sectors.”

Most analysts believe China returned to growth in the second quarter after its dramatic contraction at the start of the year. Growth data for the April to June period will be published on Thursday.

The CSI300 index leapt 2.1% and the Nikkei 225 benchmark surged 2.22%, with optimism around the discovery of a vaccine also lifting the mood. Last Friday, tests showed Gilead Sciences Inc’s antiviral remdesivir reduced risk of death in severe cases.

Australia’s S&P ASX 200 index climbed 0.98% but the Hang Seng benchmark under-performed, edging up 0.17% after China unveiled sanctions against US officials and entities.

“China’s accelerating credit flows bode well for the global industrial cycle. Chinese credit leads domestic capex and imports,” macro research firm BCA Research said in a note.

“Moreover, household leverage is rising steadily, driven by medium- and long-term loans. Such dynamics suggest that real estate loans are expanding, which should support housing prices and construction activity.”

Credit markets also got off to a flying start with the Asia IG index narrowing by 2 basis points to 79/80 bps and a surfeit of issuance hitting the market. Cifi HldingsICBC, Vista Land, Risesun Real Estate, Nonghyup Bank, Bank of Communications and Yunnan Construction are among the issuers looking to issue bonds.

Also on Asia Times Financial

China to bounce back into the black, analysts say 

Markets this week: Banking on the numbers 

Officials vow 'zero tolerance' over capital market violations

China's central bank injects 50bn yuan into banking system  

Foreign Exchange:

Asia Stocks

# Japan’s Nikkei 225 jumped 2.22%

# Australia’s S&P ASX 200 added 0.98% 

# Hong Kong’s Hang Seng index edged up 0.17%

# China’s CSI300 soared 2.1%

# The MSCI Asia Pacific index advanced 1.57%.

Stock of the day

Drugmaker Fosun Pharma rose as much as 11.5% after it said its subsidiary Gland Pharma is planning an IPO to raise 12.5 billion Indian rupees. “The proposed spin-off and separate listing is conducive to the business development of Fosun International and Fosun Pharma, and will provide a separate fundraising platform for Gland Pharma,” it said in a stock exchange notice.