Market Close Apr 30

Markets cheer as China reopens but demand recovery uncertain

China PMI data in expansionary territory; new bond issues in Asia trade firm; China Beige book shows 91% of companies have reopened

Markets cheer as China reopens but demand recovery uncertain
Workers make baby carriages at a factory in Handan in China's northern Hebei province on April 29, 2020. Chinese factory activity continued to expand in April, data showed on April 30, but analysts warned that the outlook remained clouded by battered overseas demand as the rest of the world struggles to overcome the coronavirus pandemic. Photo: AFP

Hong Kong: Investors sentiment was turbo-charged by positive signs at a clinical trial for a potential coronavirus treatment drug and following reassuring comments from the US Federal Reserve overnight.

Earlier, this morning China published economic data which showed manufacturing PMI was 50.8 in April compared to the previous 52.0 and non-manufacturing PMI recorded at 53.2 in April compared to 52.3 in March.

“It is still too early to conclude that the Chinese economy is growing again. The Western world has yet to relax some of its city lockdowns. And even after the lockdowns are relaxed, it is uncertain when demand will return to pre-Covid levels due to strict social distancing measures implemented domestically and in foreign economies,” ING’s Greater China economist Iris Pang said in a note, She said global demand is likely to remain weak due to high unemployment rates in major economies.

The Nikkei 225 rose 2.14%, the CSI 300 rose 1.18% and the ASX 200 climbed 2.39% as oil prices continued their recovery - WTI prices are up 11.4% and Brent edged up 6%.

Regionally, the MSCI Asia Pacific benchmark advanced 1.2% with the Hong Kong markets shut for a local holiday.

China Beige Book International said some of the Q1 supply-chain bottlenecks had begun to ease and that by late April almost all – 91% – of Chinese companies re-opened shop, in a survey gauging the state of China's economic recovery over the past month.

"The economy is on less solid ground than official data, and the associated foreign echoing, would have you believe. Still-weak demand at home and shutdowns across Europe and the US are wreaking havoc on the manufacturing and services sectors," said Derek Scissors, Chief Economist at China Beige Book.

Credit markets are positive with newly priced bonds trading higher. Shuifa Group priced a 3-year bond at 4.30% yield, 30 basis points inside the initial price guidance and Nan Hai Corporation priced a 2NC1 bond some 50 basis points tighter indicating the demand for yield among investors.

Market gains are capped ahead of a European Central Bank meeting later in the day, where investors will be keen to see if there is a further pledge to raise its asset purchase programme after it agreed last week to accept junk bonds as collateral for bank loans.

“The European Central Bank has already insulated Italian debt ahead of today’s governing council meeting,” DBS Bank analysts said in a note. “The stress in the Italian bonds eased after the ECB announced on April 22 that it would accept as collateral eligible market assets that were downgraded to junk after April 7. The tone had been set for the ECB to “do whatever it takes” via its bond purchase programmes in terms of size, composition and maturity.”

 

ATF China Bond 50 Index: Corporates index breaches 100

 

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Asia Stocks

· Japan’s Nikkei 225 jumped 2.14%

· Australia’s S&P ASX 200 surged 2.39% 

· China’s CSI300 advanced 1.18%

· The MSCI Asia Pacific index 1.2% higher.

Stock of the day 

Glenmark Pharmaceuticals rose as much as 8.9% after it said had received approval from the regulator (DCGI) to conduct Clinical Trials in India on Favipiravir anti-viral tablets for Covid-19 patients. The Nifty benchmark was up 2.7% in comparison.