Here’s What Market Watchers Are Saying About the Wild Turnaround

(Bloomberg) -- The word “whipsaw” -- that old favorite of financial pundits in volatile times -- hardly does it justice.

After opening to one of the most brutal waves of selling in years on Friday, Asian stock markets bounced suddenly off their lows in a move that left investors grasping for explanations. The rally was most extreme in Australia, where the benchmark index swung from an 8.1% loss to a 4.4% gain, and quickly spread to everything from Indian stocks to the Chinese yuan. S&P 500 futures rose after the index dropped yesterday by the most since the Black Monday crash in 1987.

Here’s what some investors and strategists are saying about the move:

Position Unwinds

“For the first time since the Lehman shock, the risks of a serious global economic deterioration have become a real concern, and this is spurring the unwinding of positions that had built up over the past 10 years all at once,” said Takafumi Yamawaki, head of local rates and FX research at JPMorgan Securities Japan. “As such unwinding happened all at once as liquidity is dwindling, the moves in markets lack coherence. But the unwinding of positions isn’t necessarily all about selling. Treasuries are good example. Futures-driven volatility amid such an environment has made price actions incoherent.”

Australian Cheer

“I think there is a lot of bargain hunting -- which would be expected after 25-30% falls in markets. But it’s a bit hard to pinpoint the precise trigger,” said Shane Oliver at AMP Capital. News of a deal between Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi on U.S. stimulus “may have helped, along with broad-based intervention by central banks in money markets. And in Australia the Prime Minister saying schools and universities will stay open and public transport kept running may have helped.”

Technical Rebound

“A shift in sentiment could be due to a technical rebound after oversold conditions globally,” said Corrina Xiao, a fund manager at Allianz Global Investors. “Enlarged trading volume in markets shows that investors are diverging about the outlook, and there may be some bottom fishing investors who think the market has over-reacted. But how long the rebound can sustain remains to be seen.”

Lunch Break

“Reversal of the Dow futures during the lunch break is a good signal for the Asian markets,” said Banny Lam, managing director at Ceb International International Corp Ltd. “The whole market is very oversold anyway, so people are very sensitive to good indicators. For Hong Kong, we are seeing bottom fishing of some large caps like HSBC.”

Catching the Algos

“Everyone is short huge or well underpositioned and investors are now trying to catch up with the algorithms,” said Stephen Innes, chief Asia market strategist at Axicorp. “The market remains in peril’s path awaiting the health-care/fiscal package that House Speaker Nancy Pelosi and Treasury Secretary Mnuchin are working together on. A vote is likely on Friday. Measures could include unemployment benefits and free virus testing, which will hopefully see the markets turn more favorably into the weekend.”

Vaccine Out of Canada?

Medical experts have cautioned that a coronavirus vaccine could take well over a year to produce, and even then there’s no guarantee of success. Still, news that a Canadian company may have the early stages of a potential vaccine against Covid-19 was making the rounds midday Friday, according to Khiem Do, head of greater China investments at Baring Asset Management (Asia) Ltd., and Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore.

Varathan pointed to Quebec-based Medicago, which announced Thursday that it has produced a “virus-like particle” of Covid-19, the first step in developing a vaccine. The company expects to initiate human trials of the vaccine by July or August, according to a release.

Positives From China

“The biggest positive of all is that China is actually starting to show some signs of recovery,” said Satoru Matsumoto, a fund manager in Tokyo at Asset Management One Co. “I didn’t expect the sell-off to be this severe. What’s good is that central banks still have some room to cut rates, and that should support markets eventually.”

Stimulus Hopes

“After the extreme moves over recent days markets will hope for some consolidation to end a week of panic selling,” said Mitul Kotecha, senior emerging markets strategist at TD Securities in Singapore. “It is likely on hopes of some action from the U.S. Congress and some further central bank action. It’s also a reflection of how beat up the market is that some, albeit limited buying occurs. I wouldn’t read a lot into it unless we see some concrete, concerted global action.”

--With assistance from Jeanny Yu, Cindy Wang, Chester Yung and Tomoko Yamazaki.

To contact the reporters on this story: Joanna Ossinger in Singapore at jossinger@bloomberg.net;Chikako Mogi in Tokyo at cmogi@bloomberg.net;Abhishek Vishnoi in Singapore at avishnoi4@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Michael Patterson

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