Market Close May 04

Markets get the chills after Trump warning

US-China tensions rattle investors; India, Hong Kong economic data adds to gloom; Korea border firing hits won, CDS

Markets get the chills after Trump warning
A woman wearing a face mask leaves a restaurant frequented by pro-democracy supporters in Hong Kong on May 1, 2020. Riot police fanned out across the city after activists threatened to defy a ban on gatherings during the coronavirus pandemic. The streets remained largely calm but the economy has taken a big hit. Photo: Anthony Wallace / AFP

(ATF) HONG KONG: Asian markets slid on Monday after rising tensions between the world’s two largest economies. A report said US President Donald Trump may block a government retirement fund from investing in Chinese equities on grounds of national security, while US Secretary of State Mike Pompeo said on Sunday "enormous evidence" showed the new coronavirus originated in a lab in China.

The market moves were exaggerated in thin trade as China and Japan are on holiday.

The Hong Kong benchmark the Hang Seng index dived 4.18% as trading resumed following Friday’s holiday closure with Financial Secretary Paul Chan projecting GDP will contract 4-7% in the current year.

Hong Kong suffered its worst quarterly contraction of the modern era, official figures revealed on Monday, as the coronavirus outbreak hammered an economy already laid low by months of street protests and the US-China trade war. The financial hub is now experiencing its third-straight quarter of negative growth – its longest downturn since the 2008 global financial crisis, AFP said. 

Advance figures released Monday showed an 8.9% on-year contraction in the first quarter – the worst decline since the government began compiling data in 1974. The result was a bigger fall than the 8.3% during the Asian financial crisis in 1998 and the 7.8% in early 2009.

A Moody’s Analytics forecast predicted a 6.5% decline, from the 2.9% drop in the December quarter. It said there had been a larger than expected impact from the Covid-19 outbreak. "While the economy has been successful in containing the localized spread, exports and travel and tourism have suffered significant setbacks, which, combined with the persistent issue of social unrest and weakened consumer confidence, are expected to deepen the slowdown seen through 2019."

India also hit hard

Economic worries also hammered Indian stocks with the benchmark Sensex index tumbled 6.01% after data unveiled showed India suffered its worst-ever drop in factory output.

But Australia’s S&P ASX 200 rose 1.41% driven by banking, healthcare and technology shares even though oil prices edged lower.

Korea’s Kospi tumbled 2.68% and the won weakened to 1226 to a dollar, recovering from the morning’s 1230 after North and South Korean troops fired at each other in the demilitarized zone that divides the two countries, in a rare exchange of fire.

South Korea CDS has widened a basis point to 36/38 bps, narrowing from the morning’s wides. The two neighbours remain technically at war, after fighting in the Korean War was halted with an armistice in 1953 and the last time the two sides exchanged fire on the border was in 2014.

Credit markets were also risk-off in sync with stocks as the Asia IG series 33 index has widened 5 basis points (bps) to 122/124 bps and China underperforming, having moved out 5 bps to 51/53 following the US threats.

Still, that has not deterred Indonesia sovereign guaranteed PT Hutama Karya‘s issue of 10-year RegS/144a USD senior unsecured bonds, which is expected to price later today.

“The bonds will be guaranteed by the Indonesian government via the Ministry of Finance (MOF) and therefore are expected to be rated Baa2/BBB by Moody’s/Fitch, on par with the Indonesian sovereign rating. The bonds contain a CoC put at 101 if the Indonesian government ceases to directly/indirectly own >50% of Hutama Karya (the company is currently 100% government owned). The bonds are also expected to be EMBI eligible,” Nomura desk analysts said in a note.

The Stoxx Europe 600 index fell 2.5% and US futures dropped as Delta Air Lines, American Airlines, and United Airlines dropped in pre-market trade bringing down the US stock futures. The futures on the S&P index dropped 1% after investor Warren Buffett said over the weekend that Berkshire Hathaway Inc. sold all its stakes in four major US airlines.

Also on Asia Times Financial: 

China to open REITs market 

China listing limit lowered for red-chips

Beijingers rush at chance to get away as alert status lowered

India suffers worst-ever drop in factory output  

Economic data to reveal coronavirus damage this week

Foreign Exchange: Dollar demand up with risk aversion

Asia Stocks

· Australia’s S&P ASX 200 adds 1.41% 

· Hong Kong’s Hang Seng index falls 4.18%

· India’s BSE Sensex down 6.01%

· The MSCI Asia Pacific ex-Japan index down 3.11%.

Stock of the day 

Tsingtao Brewery Co. rose as much as 6.8% in a weak market after a bullish block trade.