Markets Jul 14

US-China tensions sour risk appetite

Asian markets weak amid a resurgence of US-China tensions and a rollback of economic reopenings as coronavirus infections soared over recent days

US-China tensions sour risk appetite
The coronavirus is causing grief for people in countries all over the world. This couple is in Sydney, Australia, where a previously successful campaign to contain infections has suddenly shown signs of slippage. The worldwide toll has now passed 13 million. Photo: AFP.

(ATF) Asian markets are trading with a weak bias amid the resurgence of US-China tensions and a rollback of economic reopenings as coronavirus infections soared by a million cases in five days – to more than 13 million worldwide.

US Secretary of State Michael Pompeo challenged China’s position on the South China Sea and said in a statement that “Beijing’s claims to offshore resources across most of the South China Sea are completely unlawful, as is its campaign of bullying to control them.”

He said China’s “predatory world view has no place in the 21st century” and “the world will not allow Beijing to treat the South China Sea as its maritime empire.”

“Asian markets were set up for falls after the US market fell on the back of California reversing some its reopening and US/China tensions with the US not recognising China’s claims to the South China Sea. So it's really more of the same: coronavirus and US/China tensions,” Shane Oliver, Head of Investment Strategy and Chief Economist at AMP Capital, told Asia Times Financial.

“The latter is likely to continue to escalate up until the US election at least – particularly if President Trump thinks he has nothing to lose, which may cause him to take more risks with the economy and share market.”

Markets retreat

The Nikkei 225 is down 0.84% on the eve of the BoJ rate decision, the Australian S&P ASX 200 is off 0.56% and the CSI 300 has slid 1.24%. Hong Kong’s HIS benchmark has tumbled 1.84%.

The coronavirus linked disruptions continue to roil the global economy with Singapore entering a technical recession after shrinking by 41.2% in the second quarter.

“This will be marked as the bottom of the current downturn,” said ING economist Prakash Sakpal, while adding that second-quarter data caused a revision of ING’s full-year 2020 growth forecast, down to -6.9% from -6.1%. That put it near the weak end of the government’s forecast range of -4% to -7%.

“But recovery from here on is going to be weak. Hopes are based on a large stimulus in preserving jobs and preventing further weakness in spending over the rest of the year. But persistent external uncertainty depressing exports and tourism provide no hope of a return to positive year-on-year GDP growth anytime soon, at least not over the rest of this year,” he said.

Credit markets are also edgy in line with the overall risk outlook with the Asia IG index widening by a basis point to 80/81 bps. Still the near-zero interest rate environment continues to draw investors to new issues with Melco ResortsGoodman HK and Yunnan Construction in the market with bond offerings.