Market Close May 20

Market falters amid US-China tensions, vaccine dismay

Vaccine claims disputed, puncturing upbeat mood; Trade war clouds gather; Credit markets extend gains

Market falters amid US-China tensions, vaccine dismay
China on Wednesday lambasted US Secretary of State Mike Pompeo for sending a congratulatory message to Taiwan President Tsai Ing-wen on her inauguration, saying it was 'extremely wrong, and it's also very dangerous'. Photo: AFP

(ATF) Hong Kong: Asian markets got a reality check after media reports questioned positive early results from a Moderna Inc Covid-19 vaccine trial and tensions between the world’s two biggest economies resurfaced.

After clashing at the WHO assembly, the war of words between US and China has intensified with the risk of reopening of their newly healed trade war wounds.

“Renewed trade tensions between the US and China could weigh on markets in the coming months, as risks of bigger economic retaliation could impact an already fragile and slow recovery,” said Esty Dwek, head of Macro Strategy and Investment Solutions at Natixis IM.

“There will be more bark than bite, but that doesn’t mean markets will not react to the headlines. So higher volatility is likely, especially as ‘tough on China’ will clearly be a large part of Trump’s re-election campaign.”

Meanwhile, a medical journal said the claim that a vaccine developed by Moderna, whose stock surged 29% on Monday, did not generate enough confidence within the scientific community.

“A vaccine looks unlikely to be developed, tested and made available for mass distribution before mid-2021 at the earliest,” said Rupert Thompson, Chief Investment Officer at Kingswood. “Consequently, social distancing looks set to remain a fact of life for at least another year yet.”

Stocks lacklustre

Broadly, stocks in Asia were lacklustre. Japan’s Nikkei 225 edged up 0.79% and Australia’s S&P ASX 200 added 0.38%. Hong Kong’s Hang Seng benchmark ended flat and mainland China’s CSI 300 index was 0.53% lower.

Credit markets held up better than equities as yield hungry investors piled into investment grade bonds.

The Asia IG index was a basis point tighter at 111/112 with sovereign names tighter by 1-2 basis points. Primary markets remain active. Hongkong Land saw orders of over $3.4 billion for a 10-year dollar bond, Hilong Holdings commenced a bond exchange offer for a $165 million bond and Henderson Land issued price guidance for a 5-year bond. 

Fitch Ratings put Hilong’s B rating on Rating Watch Negative, deciding not to treat it as a restricted default or a distressed exchange. “Fitch does not consider the proposed exchange offer to be a distressed debt exchange because it does not impose a material reduction in terms compared with the original contractual terms,” it said in a note on Wednesday.

“In addition, the company has sufficient cash and readily available cash onshore to redeem the bond. Hilong expects to receive SAFE approval to transfer the money offshore if the exchange offer is unsuccessful.”

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Foreign Exchange: New virus concerns keep yuan pinned to weak side

Asia Stocks

· Japan’s Nikkei 225 climbed 0.79%

· Australia’s S&P ASX 200 added 0.38% 

· Hong Kong’s Hang Seng index inched up 0.05%

· China’s CSI300 declined 0.53%

· The MSCI Asia Pacific index rose 0.48%.

Stock of the day 

Microport Scientific rose as much as 12.95% after the medical products company called an annual general meeting to approve a share buyback for as much as 10% of its equity capital.