Market Close Mar 12

Stimulus rollout, vaccine plan lifts markets 

Jefferies recommend selling US Treasuries and buying China government bonds; Hong Kong underperforms on heightened tensions; US vaccine rollout stokes inflation fears 

Stimulus rollout, vaccine plan lifts markets 
Concerns about the escalation of US-China tensions over Hong Kong weighed on the Hang Seng index. 

HONG KONG: Asian markets were on a sugar high as US President Joe Biden signed the $1.9 trillion stimulus package and said he would direct states to make all adults eligible for the coronavirus vaccine by May 1.

But worries about the escalation of US-China tensions over Hong Kong weighed on the Hang Seng index which underperformed the region.

Overnight, the United States condemned Beijing’s decision to change Hong Kong’s electoral system after China’s parliament approved a draft decision to change democratic representation in the city’s institutions and introducing a mechanism to vet politicians’ loyalty.

Read more: China to ramp up reform of SOEs, energy and rail sectors

China’s foreign ministry spokesman said Beijing would oppose any external forces' interference in China's internal affairs, referring to the Hong Kong decision.

Japan’s Nikkei 225 index jumped 1.73%, Australia’s S&P ASX 200 advanced 0.79%, and China’s CSI300 added 0.35% but Hong Kong’s Hang Seng index tumbled 2.20% due to the heightened tensions. Regionally the MSCI Asia Pacific index climbed 0.51%.

The dollar rose 0.5% to 91.94 and US Treasuries slipped after the number of weekly new jobless claims came in lower than expected on Thursday. The 10-year yield rose 6 basis points to 1.60%.

Jefferies strategist Chris Wood said: “Greed and fear’s recommended macro trade for 2021 is so far working out well. That is to short the 10-year Treasury bond and buy the Chinese 10-year. The 10-year Treasury bond yield has risen by 59bp so far this year to 1.50% while the Chinese ten-year yield is up 11bp to 3.25%.”

CYCLICAL REBOUND

He said there were two factors driving this trade – the potential for a powerful cyclical rebound out of the pandemic would drive up US yields while China’s pandemic strategy differed from other countries.

“China remains in targeted tightening mode and eased less last year than almost any government globally in response to the epidemic. A reminder of the conservatism of current Chinese policy at the macro level came on Friday when Premier Li Keqiang set a target for 2021 real GDP growth of only ‘above 6%’ at the opening of the National People’s Congress,” he said.

Gold tumbled on the strength of the dollar with the 1.2% fall to $1,703 per ounce. Oil prices eased with the WTI down 0.1% to 68.95 and Brent 0.2% to $69.47, losing steam after its recent rally.

Asia Stocks

  • Japan’s Nikkei 225 index jumped 1.73%
  • Australia’s S&P ASX 200 advanced 0.79% 
  • Hong Kong’s Hang Seng index tumbled 2.20%
  • China’s CSI300 added 0.35%
  • The MSCI Asia Pacific index climbed 0.51%.

Stock of the day

Sunac China Holdings shares rose as much as 11.4% after brokerage Jefferies reiterated its buy rating on the stock and raised its price target to HK$48.32 from HK$46.17, implying an upside of over 40%.

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