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Infection surge singes investors

(ATF) Hong Kong: Asian markets were broadly weaker after a spike in coronavirus infections threatened to stymie the economic recovery ahead of the holiday season, but Chinese markets outperformed on a sustained world-beating economic recovery.

Japan’s Nikkei 225 index dipped 0.17%, Australia’s S&P ASX 200 eased 0.43%, and Hong Kong’s Hang Seng index slipped 0.69%.

But China’s CSI300 edged up 0.21% after factory output in the world’s second biggest economy rose for the eighth straight month. Regionally, the MSCI Asia Pacific index retreated 0.49%.

“In sum, November activity data pointed to solid expansion of industrial and services activity in China, on the back of strong export growth and further normalization of services consumption after the hit from coronavirus. Labor market improved further, consistent with the strong employment indexes under the PMI surveys,” Goldman Sachs economists Maggie Wei, Helen Hu and Hui Shan said in a note.

“With our expectation of stronger momentum heading into next year, we also update our 2021 GDP forecast to 8.0% year-on-year (vs 7.5% yoy previously) and expect smaller deceleration in fixed investment growth and bigger acceleration in export growth in 2021 vs this year.”

Pound could get a pounding

The British pound fell, giving back its recent gains on hopes of a Brexit agreement, with the latest setback triggered by confirmation that London will move into Tier 3 of Covid-19 restrictions from Wednesday. The pound fell 0.3% to 1.32 against the dollar. It had risen to 1.35 to a dollar on Monday, a level not seen since 2018 after the UK and Europe agreed to continue Brexit talks.

Talks over a post-Brexit trade agreement will resume later, but as Prime Minister Boris Johnson keeps warning us, both sides remain “very far apart” in key areas. Still, the fact that they are willing to continue the talks means there is hope that a deal will be reached in the final hours.

“The pound is thus likely to remain in a sideways range with the upside potentially capped by $1.35 until there is an actual deal. If a deal is reached, the pound could surge past the 1.35 handle, before potentially heading towards 1.40,” Fawad Razaqzada, a market analyst at TF Global Markets, said.

But he warned that the markets were unprepared for the UK departing without a deal.

“This outcome will probably come as a shock and could see sterling get a good pounding, sending the cable possibly down to $1.20.”

Gold jumped 1% to $1,845 to an ounce but the dollar remained weak as a $908 billion relief package, was pushed forward raising hopes of a US stimulus programme being unveiled soon.

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Asia Stocks

· Japan’s Nikkei 225 index dipped 0.17%

· Australia’s S&P ASX 200 eased 0.43% 

· Hong Kong’s Hang Seng index slipped 0.69%

· China’s CSI300 edged up 0.21%

· The MSCI Asia Pacific index retreated 0.49%.

Stock of the day

Sri Lanka hard currency bonds fell across the board after S&P Global downgraded its sovereign rating to CCC+ from B- on increased refinancing risks. “With the implementation of expansionary budget measures in Sri Lanka, we expect the country’s fiscal position to deteriorate materially over the next few years in the absence of favorable economic and financial conditions,” the agency said. The country’s longest dated bond due in 2030 is now trading at just 56 cents on the dollar.  

Umesh Desai

Umesh Desai is the Executive Editor at Asia Financial. Prior to this he spent over two decades with Reuters News as Asia Pacific Chief Correspondent in Hong Kong and Bureau Chief in Bombay. Before becoming a journalist Umesh was a credit ratings analyst with Moody's arm in India - ICRA. A chartered accountant by training, Umesh began his career as an equity analyst. His Twitter handle is @umesh_desai


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