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Rally pinned on coronavirus retreat

Trade of the Day: Equities, futures surge on coronavirus retreat; US Treasuries, gold weaken 

Quote of the Day: “BCA Research’s US Equity Strategy has shown that it takes a median two full years for the SPX to make fresh all-time highs following a bear market. Based on the median and mean profile of the bear market recoveries since WWII, the SPX will not make any fresh all-time highs until early 2022,” the macro research firm said in a note.

Stock of the day: Anta Sports surged as much as 10.5% after the sports goods manufacturer and trader announced a surge in operating cashflow which jumped 68% even though cash balances declined and gearing ratio soared.        

Number of the Day: 191. The number of countries that allow visa-free entry for holders of passports from Japan, which topped the Passport Index. With 3.5 billion people, nearly half the global population, presently living in voluntary or mandatory confinement, the latest results from the index raise challenging questions about what travel freedom and global mobility really mean, both currently and in a deeply uncertain post-pandemic future, the index complier Henley & Partners said in a statement. 

Tip of the Day:  “Major economies are now in the deleveraging phase of the recession where the dominant focus is on improving balance-sheet quality. Although we expect both equities and credit to stay on the defensive for the time being, we now expect credit to outperform equities in risk-adjusted terms,” said Oxford Economics in a note. “We trim our allocation to global equities further in favour of IG credit while maintaining underweight allocations to HY credit.” 

Financial markets extended gains after a sustained improvement in the coronavirus outbreak situation with investors putting cash back to work in a market littered with beaten down assets. The Stoxx Europe 600 Index added 2.1% and S&P 500 futures are up 2.5% following gains in Asia.

Bond markets are also stirring back to life following the jumbo multi-tranche sovereign bond issue by Indonesia. China reported no new deaths and epicentres like Italy, Spain, France and Germany all reported lower number of deaths.

The Nikkei 225 rose 2.01%, Korea’s Kospi benchmark advanced 1.77%, Hong Kong’s Hang Seng index advanced 2.1% but Australia’s S&P ASX 200 dipped 0.65% after its recent outperformance. China’s stock markets resumed after Monday’s holiday closure, with the CSI300 gaining 2.28%. Regionally, the MSCI Asia Pacific index closed 2.02% higher and the MSCI Asia Pacific ex-Japan benchmark advanced 2.89%.

Credit markets are firm with sovereign CDS tighter by 2-5bps. The Asia IG Series 33 index moved in by 2 basis points at 138/141.

Oil prices recovered after the recent collapse following the feud between Saudi Arabia and Russia as financial markets focused on the upcoming meeting to discuss output cuts. Brent futures are up 2.5% and WTI is up 3.6%.

Indonesia priced a three tranche $4.3 billion bond offering with the bonds due 2030/2050/2070 priced to yield 3.90%/4.25%/4.50% which was about 25-40bps inside the initial guidance. The timing is appropriate following the global fiscal and monetary stimulus actions which provide a supportive backdrop for credit markets.

“Unprecedented policy actions to limit the coronavirus shock and sharply lower valuations have improved the outlook for credit, in our view,” said BlackRock Asset Management in a note which said coupon income was crucial in an even more yield-starved world. 

“Major central banks are committed to keep rates low and greatly expand their balance sheets. This underpins demand for corporate bonds and selected sovereign credit. We upgrade our view on global investment grade credit to a moderate overweight from underweight and keep high yield as an overweight.”

The hunt for yields has also pushed up flows into China with PBOC data showing a net increase of 59 billion yuan in Q1 of foreign holdings in the bond market. As of the end of March, some 822 foreign institutional investors entered the interbank bond market. They hold bonds worth a total 2.26 trillion yuan.

Bond Connect data also reflects a similar trend as foreign holdings are seen rising from the current level “World sentiment towards China is improving due to its early containment of the coronavirus outbreak, and this is making Chinese bonds look like a shelter in the global storm,” said Chi Lo, senior greater China economist at BNP Paribas Asset Management.

At 2.3%, foreigners’ holdings are still tiny when compared with developed markets such as Japan, where 12.1% of outstanding debt is owned by overseas holders, and the US (28%), as well as such emerging markets as Indonesia (39%) and Malaysia (24%).

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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