Markets Sep 20

This week: Flash PMIs, tech bans and WGBI review

China will update loan prime rates and release industrial profits in the week ahead, while there will also be PMI survey data for Japan and Australia, and bond investors will tune in to FTSE Russell’s World Government Bond Index review

This week: Flash PMIs, tech bans and WGBI review
Bond investors will monitor FTSE Russell’s World Government Bond Index (WGBI) review as investors are confident that China will be included in the fixed income benchmark. Standard Chartered said that could trigger passive inflows of $150-$180 billion. Image: iStock.  

(ATF) Economic events

Financial markets will be hostage to geopolitics once again as US President Donald Trump promised to ban WeChat and video-sharing app TikTok from US app stores starting Sunday night, a day after China unveiled “Regulations on the List of Unreliable Entities” in response to US sanctions list. Although there were no companies mentioned in China’s new regulations, the message is clear that Beijing would respond to any US sanctions making investors nervous.

In the week ahead China will update the loan prime rates and release industrial profit figures, which are expected to reflect the effects of the economic rebound.

“The latest Chinese macro data download this week has certainly confirmed the ongoing cyclical recovery, most particularly the continuing recovery in private sector fixed asset investment (FAI) and manufacturing FAI,” said Christopher Wood, a strategist at Jefferies & Co, who said it highlighted the extent to which inventory levels are still below pre-Covid levels for some A-share listed companies.

“All this is good news for the cyclical trade. This is a reason not just to own internet names in a China equity portfolio. But even for those equity investors globally not involved with China, the inventory rebuild story has forward looking implications for the rest of the world since companies in the rest of the world went into cash preservation mode after China.”

Elsewhere in the region focus will turn to the flash PMI survey data for Japan and Australia, with the latter drawing particular attention after an easing of restrictions in Victoria.

“Latest business surveys indicated a further strengthening of global economic growth in August, but countries showed varying degrees of resilience in terms of their economies rebounding. These worries are amplified by rising infection rates in parts of the world, leading to pandemic restrictions tightening,” Bernard Aw, the Principal Economist at IHS Markit, said in a note.

Bond investors will also tune in to FTSE Russell’s World Government Bond Index (WGBI) review with investors confident that China will be included in the fixed income benchmark. Standard Chartered said China's inclusion could trigger passive inflows of $150-$180 billion. 

Fund flows

Investors put more money to work in the week to September 16 as they pulled funds out of Money Market and Balanced Funds while raising their holdings in overall bonds and equities, data provider EPFR said. Investors withdrew $58.9 billion out of Money Market Funds, $101 million from Balanced Funds and $741 million from Alternative Funds. Inflows into all Bond Funds totalled $9.1 billion and Equity Funds absorbed $26.3 billion, showing that the slight risk aversion was not severe enough to drive investors back to cash.

“With Covid-19 caseloads on the rise in Europe and key emerging markets, predictions for effective wide-scale vaccination slipping into 2Q21, last week’s technology sell-off jolting market confidence and Sino-US tensions still running high, investor sentiment took a turn for the defensive during the second week of September,” Cameron Brandt, EPFR’s research director, said.

Fresh money piled into US Equity funds while non-Japan Asia saw heavy redemptions as fresh outbreaks of the coronavirus pandemic in some countries triggered worries about renewed lockdowns and a hit to economic activity.

Emerging market bond funds extended their streak of inflows to 11 weeks although the momentum flagged. But China’s bond markets continued to receive flows and the year to date tally stands head and shoulders above the rest of the EM space (see chart).

“China Bond Funds have enjoyed above average inflows for several weeks, and China has been by far the most attractive market for fund managers with cash to allocate,” Brandt said.

Economic data calendar

Last week's rating changes