Market Close Jun 18

Markets subdued on outbreak worries, China outperforms

Markets broadly lower on second wave jitters; China outperforms as State council pledges support; Issuers rush to corporate bond market tapping investors’ hunger for yield

Markets subdued on outbreak worries, China outperforms
A stock broker in Hong Kong checks share prices and movements in this file photo from march 2020. Pic: AFP.

Hong Kong: Financial markets are on tenterhooks amid signs of a resurgence in coronavirus infections in some countries which could result in economic restrictions being imposed at a time when signs of a rebound are emerging.

China’s CSI 300 index was the regional outperformer, rising 0.67% after the State Council vowed to help small and medium-sized banks (SMBs) add equity capital, guide down lending rates, bond yields and financing costs.

“The State Council yesterday urged banks to lower lending costs, and called for use of RRR cuts or PBoC re-lending to keep bank liquidity reasonably ample. We think the next RRR cut could come as early as the coming week,” said Morgan Stanley analysts in a note.

But Ting Lu, Nomura’s Chief China economist, expects an RRR cut to be announced even this weekend.

"We note that it is very unusual for the State Council to directly request lowering government bond yields, suggesting that top policymakers could be uncomfortable with the recent rise in government bond yields when the government needs to ramp up bond issuance," Lu said.

Lu said the PBoC was very likely to cut the medium-tern lending facility (MLF) rate by 10 basic points or even higher to guide down the loan prime rate (LPR) soon, but the probability of cutting benchmark deposit rates appears to be fading.

Interbank interest rates and government bond yields could peak now and drop in coming weeks.

Disappointments

But economic disappointments continue to roil sentiment in parts of the world. Australia’s May employment report showed a 227,000 overall fall in jobs, much worse than expected. Unemployment rose 86,000 to 928,000 and took the unemployment rate to 7.1%, its highest since October 2001, when it reached 7.2%.

“The rise in the unemployment rate was further helped by a drop in the labour force participation rate to 62.9% from 63.6%. That suggests many unemployed becoming disaffected with their chances and drifting out of the labour force. Some may not return when the economy revives,” said Robert Carnell, ING Bank’s regional head of research in the Asia-Pacific, in a note. “The size of the figures also highlights the difficult job that all governments, not just that of Australia, have in providing an offset to the impacts of lockdowns.”

Japan’s Nikkei 225 index fell 0.45%, Australia’s S&P ASX 200 index ended down 0.92% and Hong Kong’s HSI benchmark was off 0.1%.

Credit markets clawed back from the morning lows while the Asia IG index moved out by 3 basis points (bps) at 86/87 and sovereign CDS was wider by 2-7 bps.

But primary markets are busy as fixed income investors seek yield in a world where rates are low and unlikely to rise in the near future. Haitong International, Yincheng International, Minor International are among the new mandates, which join a handful of other issuers in the region.

Also on Asia Times Financial:

China offers A shares to more foreign investors

Electricity generation is accelerating in China

Fitch Revises India's Outlook to Negative, sparking bond index inclusion worries

Foreign Exchange: Defying China bashers, HKD goes from strength to strength

Asia Stocks

# Japan’s Nikkei 225 fell 0.45%

# Australia’s S&P ASX 200 retreated 0.92% 

# Hong Kong’s Hang Seng index edged lower by 0.1%

# China’s CSI300 advanced 0.67%

# The MSCI Asia Pacific index eased 0.29%.

Stock of the day 

Telecom company ZTE rose as much as 22% after it said its chip design and development capabilities were unveiled on an interactive platform yesterday, adding the 7nm chips are under mass production and being utilised in global 5G networks.