Asian stocks rose as investors cheered government stimulus efforts, despite mounting evidence that the coronavirus pandemic is wreaking havoc on the global economy.
The positivity across the region’s markets on Friday came after Wall Street notched its best three-day run since the 1930s. But investors warned that the rebound in markets would quickly run out of steam without signs the outbreak is slowing.
Japan’s Topix stock index closed 3 per cent higher, taking its gains for the week to over 10 per cent. South Korea’s Kospi edged up 1.7 per cent while China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks and Hong Kong’s Hang Seng added 0.8 and 1 per cent, respectively. Australia’s S&P/ASX 200 closed down 5.3 per cent, erasing earlier gains.
Wall Street stock futures suggested the S&P 500 would open 1.4 per cent lower when trading begins later on Friday. FTSE 100 futures were down 1.2 per cent.
The S&P 500 closed up 6.2 per cent on Thursday after the US Senate approved a $2tn stimulus deal. The emergency bill to provide relief to taxpayers and businesses could be voted on in the House of Representatives on Friday.
This “support has alleviated the panic in markets”, said Johanna Chua, an emerging Asia strategist at Citi. But she cautioned that the rebound would not last against the dire economic background and growing rates of infection. “Many market participants view this squeeze up in the markets as a bear market rally.”
Strategists said that there could be more pain to come following a violent sell-off over the past few weeks that prompted big investors to liquidate riskier holdings in favour of hoarding cash.
“The first phase of the market correction has been completed as we learn how to cope with the virus,” said Johanna Kyrklund, chief investment officer at Schroders in London.
Investors’ attention will now turn to the impact of lockdowns of billions of people across Asia, Europe and the US and large-scale industrial shutdowns. “The next phase [of the sell-off] will be about processing the economic consequences,” Ms Kyrklund added.
The economic toll of the coronavirus pandemic is starting to become apparent, particularly in the US, which overtook China to become the country’s with the highest number of infections.
US data on Thursday revealed jobless claims surged to a record 3.3m in the week ending March 21 due to the pandemic.
Figures on Friday showed China’s industrial profits plunged nearly 40 per cent year on year in February — a drop of almost $60bn — while South Korean consumer sentiment fell to its lowest since 2009.
Analysts at ANZ forecast Asia’s gross domestic product growth could slow to 3.3 per cent this year, compared to more than 5 per cent in 2019. The economic damage could be even worse than feared, depending on how long the pandemic lasts, the analysts said.
Haven assets also rose on Friday. Japan’s yen strengthened 1 per cent to ¥108.41 per dollar, while the 10-year US Treasury yield fell 5 basis points to 0.793 per cent. Yields fall as bond prices rise.
“Despite some relief in equity markets over the week, the picture for the global economy and markets still looks bleak,” said Daniel Been, a strategist at ANZ in Sydney.
“Governments will continue to impose restrictions on social mobility, severely curtailing activity,” he added. “Many businesses are searching for ways to maintain operational normalcy with restricted supply chains and fewer customers.”