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Investors take breather after sell-off

Trade of the Day: Shares pause after previous day’s massive sell-off; US Treasuries flat.

Quote of the Day: “We expect to see a gradual reduction in the number of stocks in Asian equity portfolios. Fewer, high-conviction investments allow investors to differentiate themselves versus ETFs, which track the broader market,” said HSBC strategists in a report explaining that the structure of Asian equities allows for better potential outperformance versus the benchmark than in the US, and that active managers have outperformed the broader index.

Stock of the Day:  Fosun Pharma rose as much as 11.3% after it said its product has been accepted by the National Medical Products Administration for review of its marketing registration. “According to the financial reports announced by Gilead Sciences, Inc. and Novartis Pharma Schweiz AG, sales of YESCARTA® and KYMRIAH® in 2019 amounted to approximately US$456 million and US$278 million, respectively,” the notice said.          

Number of the Day: 40 billion euros. The combined hit to luxury goods makers’ revenue as the coronavirus outbreak hits sales in China, according to a new survey of industry executives conducted by Alliance Bernstein and Boston Consulting Group.

Tip of the Day: “We remain positive on Asian risk assets for several reasons. First, in our base case we continue to expect earnings to grow in the vicinity of 12% for the region (previously 13.7%) this year, believing any potential earnings cuts will be mostly in 1Q and short lived. Second, valuations in Asia, unlike in the US, are reasonable – Asia ex-Japan trades at 1.6 times its book value, which is around its long-run average, and is at a 35% discount to its global peers. Third, solid free cash-flow generation and low private sector net-debt-to-equity buttress the operating outlook. Hence, we are not adjusting our current investment plan – which means staying overweight emerging market equities, and regionally, Asia ex-Japan stocks,” said the UBS Global Wealth Management Chief Investment Office in its investment outlook published on Tuesday.

Selling pressure eased and markets recouped some losses on Tuesday as investors monitored the geographical spread of the coronavirus. The infections count crossed the 80,000 mark as South Korea, Iran and Italy reported new cases. The MSCI Asia Pacific ex-Japan index bounced off the day’s lows and ended the day up 0.5%, but the Nikkei index plummeted 3.3% as the Japanese market played catch up after a holiday gap. The Australian S&P ASX 200 fell 1.6% and the Hang Seng index edged up 0.27% as technology and healthcare gains offset losses in utilities and telecom sectors.

The Stoxx Europe 600 Index was down 0.3% but the S&P Futures are up 0.4% as markets recover from the previous day’s sell-off when all three benchmarks fell by over 3%.

“Investors are considering the potential ramification on the global economy beyond weaker growth in China and supply chain disruptions,” said JP Morgan Asset Management Asia chief market strategist Tai Hui. He said that besides tracking the new infection count as a measure of medical effectiveness, markets would also look at central banks and governments. “Micro-measures to support businesses during periods of major disruptions, including tax and fee waivers and cash support, are probably more effective than broad rate cuts by central banks,” he said.

While the IMF said the global economy could still see a V-shaped recovery from the coronavirus,analysts are less hopeful about Hong Kong, which reports its GDP data on Wednesday. “The domestic economy was already in recession before the outbreak, leaving little cushion for households and businesses to weather another shock,” said Standard Chartered Bank analysts in a note. “This, along with the services-oriented nature of Hong Kong’s economy, suggests that it will benefit less than other Asian economies from a potentially swift normalization of production in China. We see a U-shaped recovery due to weak underlying local demand.” The bank has revised Hong Kong’s GDP growth forecast for 2020 to -2.4% from -1.5%.

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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