Markets Apr 23

Markets rebound as oil stabilizes

SEC warning on Chinese companies; Korean economy faring well; ECB bracing for downgrades

Markets rebound as oil stabilizes
Securities and Exchange Commission chief Jay Clayton testifies before the House Financial Services Committee in Sept 2019. Clayton warned investors last night that the SEC has struggled to get access to audit papers and the Public Company Accounting Oversight Board does not have the same level of oversight over companies in China. Photo: AFP

(ATF) Asian markets were in a broad rebound on Thursday following Wall Street's gains as oil prices showed signs of stability.

This morning, Japan’s Nikkei 225 index was 0.81% higher, while the Australian S&P ASX 200 was up 0.25% and the Hong Kong benchmark, the Hang Seng index, was flat.

China’s CSI 300 benchmark was marginally higher and the South Korean benchmark Kospi was up 0.7% after it reported its biggest fall in GDP since 2008, as analysts factored in improvements ahead.

Seoul reported that its GDP shrank 1.4% in the first quarter from the previous quarter, reversing the gains of last year’s fourth quarter. ING economists said the South Korean economy was faring better than most of Asia and they could upgrade their -0.3% GDP forecast for 2020 amid chatter of a third additional budget and a stronger second quarter.

“We anticipate a further, though smaller, decline in GDP in 2Q20 - Korea was in control of its Covid-19 outbreak much earlier than anywhere else, apart from China, so most of the weakness in 2Q20 will relate to the global backdrop rather than domestic weakness,” Robert Carnell, ING’s regional head of research, said in a note.  

The global infections count now exceeds 2.5 million cases with a total of over 177,000 deaths.

Credit markets are beginning to see the primary issuance pipeline swell with several investment grade issuers in the market. The Asian IG series 33 index has narrowed by 3 bps to 120/123 bps with Malaysia the out-performer, narrowing 7bps to 110/120 bps.

Overnight, on Wall Street, the Dow Jones Industrial Average climbed 2%, while the S&P 500 advanced 2.3%, and the Nasdaq Composite rose 2.8%.

Meanwhile, the European Central Bank is bracing for further downgrades in its corporate sector. The ECB said it will accept some junk-rated debt as collateral for its loans to banks.

“The ECB may decide, if and when necessary, to take additional measures to further mitigate the impact of rating downgrades, particularly with a view to ensuring the smooth transmission of its monetary policy in all jurisdictions of the euro area,” it said.

SEC warning on Chinese companies

Emerging market companies listed in the US, particularly those from China, will come under greater scrutiny after US Securities and Exchange Commission chairman Jay Clayton, in a Fox TV interview, warned investors on companies’ governance issues with regard to disclosures. He said the SEC had struggled for a long time with the Public Company Accounting Oversight Board (PCAOB) to get access to audit work papers and the board did not have the same oversight with respect to operations in China from a financial reporting point of view, like elsewhere.

This follows a report from the SEC that said: “Investors and financial professionals should consider the potential risks related to the PCAOB’s lack of access to inspect PCAOB-registered accounting firms in China.“

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