After a ‘Sell Everything’ Week, Asian Stock Markets Get Relief
Asian equities are set to mark their first gain in a harrowing week, with investors covering shorts and hunting for bargains after trillions of dollars were pledged globally to contain the coronavirus pandemic.
The MSCI Asia Pacific Index rose as much as 3.4% Friday, set to snap a seven-day losing streak, in a relatively calm market free of steep drops and trading halts. The mood mirrored the sentiment in the U.S., where the S&P 500 avoided triggering price limits and held a 15-month-old support line.
Led by technology and oil shares, stock indexes across the region rebounded from the previous day, when multiple markets faced daily lower limits. Philippine stocks rose 3.4% after plunging as much as 24% on Thursday. Battered Korean shares closed up 7.4%. Japan’s markets were closed for a national holiday.
“Although the first positive day in what seems like forever is a welcome end to a tumultuous week, sentiment remains fragile,” Jeffrey Halley, senior market analyst, Asia Pacific, Oanda Asia Pacific Pte. said in a note Friday. “We have seen plenty of examples in recent times of rallies turning into routs in double-quick time.”
Governments around the world have pledged or are considering as much as $3 trillion in fiscal support, in a two-front war against plunging business sentiment and a rout in financial markets. New Zealand’s central bank on Friday announced it will offer term loans to banks, a tool it last employed during the financial crisis. Australia is working on a “significantly bigger” second stimulus package than last week’s A$17.6 billion ($10.1 billion) fiscal injection.
“Parts of the market are coming to the terms that these fiscal measures are now c. +2% of global GDP,” said Kay Van-Petersen, global macro strategist at Saxo Capital Markets Pte. The stimulus packages are “starting to get to the size we need them to get.”
While Wall Street’s resilience overnight may have also provided some relief, investors are probably short-covering after two weeks of steep declines, said Jingyi Pan, market strategist at IG Asia Pte. in Singapore.
“Definitely recommending caution here, particularly with the past two Mondays seeing markets return to price in concerns over weekend developments,” Pan added.
Most observers are refraining from calling a bottom. Markets will “ultimately settle down” only on evidence of a peak in the infection rates, deployment of coordinated policy packages and “confidence that financial markets are functioning properly,” according to a note from BlackRock Investment Institute.
In the meantime, bargain hunters are making their presence felt in the region’s markets, as Asian equities trade almost at their estimated book value after starting the year with a 41% premium.
“Think of all the different strategies you can think of, they will be out there,” said Justin Tang, head of Asian research at United First Partners in Singapore. “The all clear hasn’t been sounded but it would appear that the worst is hopefully behind us.”
©2020 Bloomberg L.P.