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Markets retreat as virus curve steepens

(ATF) Asian markets have retreated after recent gains with the focus returning on the coronavirus spread amid worries that more lockdowns may be required to slow its rapid growth – flatten the curve – and about the economic implications of such closures.

The pandemic has claimed 21,192 lives globally and the infection count has now exceeded 468,000 globally. This has already sapped investor confidence even though US and Europe are working on details of massive fiscal stimulus programmes following the Federal Reserve’s reduction of interest rates to near zero.

An investors’ survey carried out by State Street found that US sentiment, reflected in buying and selling patterns of investors, was near all-time lows.

“As the concerns over Covid-19 moved from China to Europe, the Investor Confidence Index has reflected this shift. North American sentiment declined from an already low level, hovering near all-time lows as investors wait to see the breadth of fiscal and monetary response,” it said in a statement. The index gauges investor confidence via actual trades conducted – the greater the percentage allocation to equities, the higher risk appetite or confidence.

This morning, Japan’s Nikkei 225 has tumbled 4%, Korea’s KOSPI has edged 0.2% lower and Hang Seng index slid 1.3%. Australia was the only major market with gains, with the S&P ASX 200 1.1% higher, lead by energy stocks as oil prices posted three days of gains.

Regionally, the MSCI Asia Pacific ex-Japan index is 0.2% lower.

The S&P futures are down 1% after Wall Street clung on to gains overnight. The Dow Jones Industrial Average rose 2.39%, the S&P 500 climbed 1.15% but the Nasdaq Composite fell 0.45%.

Investors are worried about the liquidity strains given the recent asset price dislocations with Capital Economics saying “money markets are under the worst strain since the GFC”. The analysts said in a note: “While the strains are not as acute as they were then, that is little comfort: the GFC is an extreme benchmark, and post-crisis policies have remade the architecture of the financial system precisely with the intention of avoiding a repeat.” There is concern about the increased possibility of defaults and additional measures that may be required to see the financial system through the pandemic.

“Although we think that continued support from policymakers will prevent a financial system meltdown that would amplify the economic shock from the coronavirus pandemic, tensions in markets are likely to remain significant until there are signs that the measures to contain the virus are working,” Capital Economics said in its note.

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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