Markets Mar 25

Risk back on after US aid plan

Stocks climb in US as virus' toll on global bourses estimated at $26tn 

Risk back on after US aid plan
A masked pedestrian walks past boards announcing prices from the Tokyo Stock Exchange. Photo: AFP

Trade of the Day: Stocks climb and futures advance after US stimulus plan; gold and US Treasuries retreat

Quote of the Day: “[SoftBank Group] believes that Moody’s ratings action is based on excessively pessimistic assumptions regarding the market environment and misunderstanding that SBG will quickly liquidate assets without any thorough consideration,” Financial Times quoted a statement from the technology conglomerate after Moody’s lowered its rating to Ba3 from Ba1. It is uncommon for companies to issue retaliatory statements after a rating downgrade.

Stock of the day:   Stocks and bonds of Evergrande, China’s biggest property developer rose after  ASI Acquirer disclosed a transaction to purchase the company’s dollar bonds. The bonds rose by 7-8% and shares jumped by over 20% .The company’s shares and bonds were hammered earlier in the weak after the company issued a profit warning.        

Number of the Day:. 1.6 million Swiss Francs. The reduction in bonus payable to Credit Suisse’s former chief executive Tidjane Thiam after a damaging spying scandal.

Tip of the Day:  “While it is difficult to call a bottom to the current sell‑off in risk assets, we are confident that markets will normalize once the impacts of the coronavirus pass. Given our long‑term investment horizon, we have been incrementally adding to equities as valuations are beginning to price in a substantial decline in economic growth and corporate earnings.

Within U.S. equities, although we remain overweight to growth stocks, we have moderated our underweight to value stocks, which have significantly lagged growth stocks amid the sell‑off. While value‑oriented equities are more cyclical, their relative valuations versus growth stocks have reached extreme levels and could be poised for a more pronounced rebound once volatility mitigates,” said Thomas Poullaouec, Head of Multi-Asset Solutions, Asia Pacific at T. Rowe Price.

Investors flocked back to risk markets after US senate is expected to pass the $2 trillion stimulus bill  which will boost the world’s largest economy even as the virus count piled up to over 436,000 globally and the death count rose to 19,648

Europe’s markets rise was reflected in the Stoxx Europe 600’s 0.3% gain and Wall Street opened on an upbeat note, with the Dow Jones Industrial Average up 1.28%. The S&P 500 advanced 0.4% and the Nasdaq Composite edged up 0.07%.

The US fiscal package equivalent to around 10% of annual US GDP, includes support for hospitals, greater unemployment benefits, cash payments to households, and loans to businesses. Also on Monday, Germany approved an emergency budget, equivalent to 3.6% of GDP. 

“We think the actions of monetary and fiscal policymakers should help prevent a Global Financial Crisis (GFC) style credit crunch. Today's sharp equity rally shows that the combination of central banks’ entire GFC playbook and substantial, direct fiscal support can be well received by markets,” said Mark Haefele, UBS Global Wealth Management Chief Investment Officer.

Earlier in the day, Asian markets ended with gains - Japan’s Nikkei 225 8.04%, Australian S&P ASX 200 climbed5.54%, Korea’s KOSPI advanced 5.89% and Hang Seng index climbed 3.81%. Regionally, the MSCI Asia Pacific ex-Japan index rose 4.22%. 

Bloomberg estimates that about $26 trillion of value has been wiped out from the stock markets globally as the economic impact of the pandemic reverberated across the world with no signs of a slowdown in the infections or death count. In the latest setback to the world’s second largest economy, data published on Tuesday showed China’s fiscal revenue contracted 9.9% in January-February from a year ago when it had expanded 3.8%. There were similar contractions in tax revenues, land sales and fiscal expenditure as the country weathered a lockdown, the severity of whose impact was seen worsening. 

“Since the lockdowns only commenced on 23 January, the sharp contraction of fiscal revenues only reflect part of the January-February period, and that is why we believe fiscal data in March could be worse,” said Nomura strategist Ting Lu in a note while adding the outlook for growth remained downbeat given the slump in external demand and the risk of a second wave of infections in China. 

“Markets still appear too optimistic. We believe the COVID-19 outbreak in China and throughout the world will significantly weigh on domestic growth, corporate profits and government revenue in the months that follow,” Lu said while forecasting China’s full year GDP would grow by just 1.3%, down from 6.1% in 2019.