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Market rally slows as economic worries set in

(ATF) Hong Kong: Financial markets remain cautious despite Tuesday’s gains amid worries that markets have priced in a full recovery and a return to normalcy in the second half of the year, which is clearly not a given. The hesitation comes after a fierce rally which saw major indexes soar 40-50% since the lows of March this year.

“Measures to contain the virus are gradually being eased in many developed economies. May’s data suggested the worst of the contraction may be behind us, but we see a bumpy restart in coming months,” BlackRock analysts said in a note.

“The big question remains: how successful policy execution will be in bridging cash flow constraints and preventing permanent damage to the economy – and what the risk is of policy fatigue in coming months.”

Capital Economics analysts said in a note that data had shown a significant variation in how the virus has affected activity, with economies in Southern Europe hit very hard, the US suffering somewhat less and some Asian economies relatively unscathed to date.

“The likelihood of renewed outbreaks is very difficult to gauge, but we assume that more modest future waves will cause containment measures to be reinstated to some extent, limiting the pace of recovery in major advanced economies and some emerging markets,” Jennifer McKeown, head of Global Economics Service at Capital Economics, said in a note.

World Bank report

The warning comes even as the World Bank said in a report the global economy is expected to contract by 5.2% this year – the worst recession in 80 years – but the sheer number of countries suffering economic losses means the scale of the downturn is the broadest recession since 1870. The bank cautioned that the crisis was likely to leave long-lasting scars and pose major global challenges.

Australia’s S&P/ASX 200 benchmark surged 2.44%, powered by financial and property stocks, but Japan’s Nikkei index fell 0.38% as latest economic data showed wage growth had turned negative and was expected to stay negative for months to come. Analysts now expect the Bank of Japan to make a move after the central bank seemed happy to let fiscal policy rather than monetary policy do the heavy lifting.

“The government now expects public and private banks to provide up to 85 trillion yen in low-interest and credit-guaranteed loans,” Marcel Thieliant, senior Japan economist at Capital Economics, said, referring to the government’s second supplementary budget. “We suspect that the Bank of Japan will want to make sure that banks don’t have to worry about how to fund that lending, As such, the Bank will probably provide a similar amount in loans to commercial lenders. We expect the Bank to expand its lending schemes a little further at the upcoming meeting, perhaps by another 30 trillion yen.”

The Bank of Japan will hold a two-day meeting next Monday and Tuesday.

Hong Kong’s Hang Seng benchmark was up 1.13% and mainland China’s CSI 300 stocks benchmark advanced 0.62%.

Credit markets retreated from morning highs with the Asia IG index 2 basis points wider at 82/83 amid the steady flow of new issues. Ronshine China , China Fortune Land and Shanghai Construction are in the market with dollar bond offerings which will price during the day.

Also on Asia Times Financial:

Pandemic drives broadest collapse in 150 years 

PBoC imposes new rules to counter corruption 

China to accelerate local government bond sales 

Foreign Exchange: Awaiting crucial May producer prices, China’s yuan stable

Asia Stocks

· Japan’s Nikkei 225 fell 0.38%

· Australia’s S&P ASX 200 surged 2.44% 

· Hong Kong’s Hang Seng index climbed 1.13%

· China’s CSI300 advanced 0.62%

· The MSCI Asia Pacific index added 0.72%.

Stock of the day 

Property developer Kaisa fell as much as 9.3% after the company made a share placement at a discount of 10% to the previous day’s closing price. The shares have a lock in period of 90 days and represent 10% of the equity capital.

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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