Type to search

Markets this week: Investors eye central banks after supply disruptions

China chip industry illustration
Beijing is aiming to develop 70% semiconductor self-sufficiency by 2025 as part of the Xi Jinping government’s Made in China 2025 campaign. Photo: Reuters

Economic events

Investor sentiment remains subdued amid signs of economic damage by the fast-spreading coronavirus as the infection count nears the 79,000 mark and the death toll climbs to 2,462. Supply-chain disruptions are hitting trade, with Apple already warning it will not meet its revenue targets and more companies expected to reveal missed projections.

An analysis of key component and other downstream technology industries shows shipment declines of 4.5% to 16% in the first quarter of 2020. The study was done by TrendForce in an investigation of Covid-19 outbreak’s impact on the global high-tech industry. The end products affected range from smartphones to notebooks to automobiles.  

It is not just China that is taking an economic hit. On Friday, US data showed the IHS Markit Purchasing Managers’ index of services sector activity contracted for the first time in four years and the manufacturing index fell to its lowest since August, as the epidemic spread to more countries. Japan, South Korea and Singapore all reported a significant rise in infections. 

That took the US 30-year Treasury yield to its lowest ever as investors bet onn a longer impact from the coronavirus amid growing expectations the US Federal Reserves could cut interest rates later this year.

Still, comments by the Federal Reserve’s vice-chairman Richard Clarida suggested the US central bank would look beyond market expectations when setting monetary policy. “Signals derived from financial market data, when combined with signals revealed from surveys of households and firms along with the filtered estimates from econometric models, can together provide valuable and reasonably robust foundations for real-time inference about the direction of travel in the inflation-adjusted, short-term interest rate that is consistent with full use of economic resources and steady inflation near the Fed’s target level and expected inflation,” he said on Friday.

China’s central bank has been more explicit about support.

In an opinion column in The Financial Times, Chen Yulu, deputy governor of the People’s Bank of China, said the central bank would take measures that strengthen countercyclical adjustment of monetary policy, and take all necessary steps for strengthening post-epidemic economic recovery, while holding an optimistic view. “The Chinese economy is expected to recover rapidly as it is supported by a restart of factories and inventory replenishment; the most likely scenario is a V-shaped curve,” he wrote.

Fund flows

Bond funds continued to attract massive flows as investors sought safer avenues. In the year-to-date flows into EPFR-tracked Bond Funds pushed over the $155-billion mark during the third week of February. Investors are fleeing markets where the coronavirus infection count is the highest with China, South Korea and Japan hit the hardest. 

“The week ending February 19 saw Korea Equity Funds post record-setting outflows, China Equity Funds experience net redemptions for the second time in the past three weeks and Japan Equity Funds record consecutive weekly outflows for the first time YTD,” EPFR said.

Driven by the outflows from these Asian markets, emerging market equity fund flows reversed direction during the week ending February 19, swinging from an inflow of over $2.6 billion the previous week to an outflow of more than $2 billion.

Overall, Bond Funds absorbed another $18 billion during the third week of February while Equity Funds took in $2.2 billion, Balanced Funds $828 million and Alternative Funds $575 million, the data provider said.  

Companies in focus

Conglomerate Lai Sun Development (LSD) said it would buy out all shares it does not own already in Lai Fung Holdings (LF) at a price of HK$8.99 per share in cash. The total value of the offer is around HK$2.98 billion. The purpose for this offer is to streamline the corporate structure of the Lai Sun Development Group.

“Currently the property businesses are carried out both directly by LSD and indirectly through the Lai Fung Group. Upon completion of the LF Offers, the property businesses will be directly aligned within the LSD Group,” it said in a statement.

Property developer Nan Fung International bonds were downgraded to junk from investment grade by Fitch Ratings on declining interest coverage after it took on massive debt for funding its Kai Tak Commercial project in Hong Kong. Fitch lowered the rating on its perpetual bonds to BB+ from BBB-, the lowest in the investment grade category. It cut the issuer’s rating to BBB- from BBB. Nan Fung’s 5.5% perpetual bonds were quoted at around 100 cents on the dollar, according to BondEvalue.

Macrotech Developers (formerly called Lodha Developers) reported after markets closed on Friday its net profit in the nine-month period ending in December 2019 fell from the previous period. The post-tax profit stood at 5.1 billion rupees, down from 16.5 billion in the year that ended in March 2019.

Economic data calendar

Monday, February 24, 2020

China FAI, Retail, IP

Singapore CPI

Germany IFO

US Chicago Fed National Index, Dallas Fed Manufacturing Index

Tuesday, February 25, 2020

Korea Consumer Sentiment Index

Japan Leading Economic Index

Germany GDP

US Redbook index, Housing Price index

Fed Clarida speech

Wednesday, February 26, 2020

Singapore IP

Hong Kong GDP

US Home sales, mortgage applications

Thursday, February 27, 2020

Bank of Korea rate decision

BoJ Amamiya, Kataoke speech

UK Housing Price index

EU M3, private loans, service sentiment, consumer confidence

US PCE, jobless claims, GDP, pending home sales, Kansas Fed mfg

US Fed Evans speech

Friday, February 28, 2020

Korea services sector, industrial output

Japan CPI, jobs, retail, IP, foreign investments stocks/bonds

Germany unemployment, imports

India bank loans, GDP, fx reserves

US Chicago Managers, Michigan Consumers index

Saturday, February 29, 2020

China PMI

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


AF China Bond