Confirmed cases in Japan grew steadily over the month, but the situation still seems under control. Following global markets with improving confidence on global economic recovery, equity indexes rebounded. The Nikkei 225 Index and the TOPIX Index were up by 6.75% (7.60% in US$ terms) and 4.35% (5.18% in US$ terms) in April.

Japan’s Prime Minister Shinzo Abe warned that even though the 2020 Tokyo Olympics could be delayed to a maximum of 1 year, if the coivid-19 pandemic is still ravaging by then, the delayed Olympics could still be cancelled. The key to effective containment of the virus is most likely via vaccination efforts, but health experts chimed in that the vaccine is likely at least a year to 18 months away, casting doubt over the possibility of holding the Olympics even in 2021.

This is further complicated by the weakening economic fundamentals in Japan, industrial production, exports, and PMI figures are all down for the time being, implying a negative outlook for the economy. To make matters worse, the epidemic response in Japan remains lukewarm and indecisive, government directives have never been compulsory, Abe in particular is criticized for his late reaction to the crisis. At the moment, the state of emergency will be extended until the end of the month, which could further delay the economic recovery.

US

Recently, market has shifted focus from the covid-19 epidemic to the rising Sino-US tesions. The US trade adviser remarked that the virus originated from China, President Trump even threatened to completely withdraw from the World Health Organisation. Moreover, the US Senate passed a bill, which may trigger delisting of some Chinese enterprises. Although the escalation caused concerns, the three major US stock indexes still rose 3.3 - 3.8% over the past 5 days ending Thursday. At the moment, global covid-19 cases has exceeded 5 million, and the latest epicentre has shifted to Brazil and India. US economic data still raised concerns, as the latest initial jobless claims figure of 2.44 million implied that job losses remained on the higher end. Against the backdrop of uncertainties in the economy, US Treasury Mnuchin pointed out that the Congress would need to pass more stimulus bills. The Beige Book will be published next week, alongside the consumer confidence index in May, plus the revised Q1 GDP.

 EU

European equities mirrored global stock market gains, the UK, French, and German indexes rose 3.7% to 5.7% over the past 5 days ending Thursday. Under the severe economic setback, European countries announced stimulus plans to counteract the epidemic impacts. The UK has launched the post-Brexit tariff plan, reducing import tariffs for a number of products; Spain on the other hand raised the country’s 2020 net debt target to 130 billion Euros, which is three times higher than the original. In addition, French President Macron and German Chancellor Angela Merkel supported establishing the EU recovery fund of 500 billion Euros, this should relief some of the downward pressures on the economy. Europe will release the initial estimates of the Eurozone CPI in May.

China

European equities mirrored global stock market gains, the UK, French, and German indexes rose 3.7% to 5.7% over the past 5 days ending Thursday. Under the severe economic setback, European countries announced stimulus plans to counteract the epidemic impacts. The UK has launched the post-Brexit tariff plan, reducing import tariffs for a number of products; Spain on the other hand raised the country’s 2020 net debt target to 130 billion Euros, which is three times higher than the original. In addition, French President Macron and German Chancellor Angela Merkel supported establishing the EU recovery fund of 500 billion Euros, this should relief some of the downward pressures on the economy. Europe will release the initial estimates of the Eurozone CPI in May.

<Harris Fraser Research Team>

US

Sino-US tensions continued to rise, US President Trump rejected dialogues with China, even claimed that he is considering cutting off bilateral trade relations between the two, the market raised concerns about the performance of Chinese concept stocks listed in the United States. Against the backdrop of trade war threats, global stock markets fell, the three major US stock indexes fell between 0.4% and 1.0% over the past 5 days ending Thursday. As for the covid-19 epidemic situation, Russia now has the second highest number of confirmed cases in the world, and the number of new cases in Brazil also set a new record, becoming a new epidemic epicentre. Although Fed Chairman Jeremy Powell refuted the rumour, the market continued to bet on negative interest rates in the US. The US core consumer price index fell 0.4% MoM, which is the largest monthly decline in history. In addition, the number of unemployment claims filed has also stayed in the millions for 8 consecutive weeks, the economic outlook remains worrying. The US will release the April FOMC minutes next week.

 EU

 The epidemic in Europe showed signs of easing, many countries have lifted border controls. Nevertheless, European stock markets still underperformed against global equities, UK, French, and German indexes fell 3.2% to 6.1% over the past 5 days ending Thursday. As the epidemic subsided, the EU is considering an economic recovery plan on a massive scale, Italy has also approved a 55 billion Euro economic stimulus plan. Other than the Fed, the market is also betting on the Bank of England lowering interest rates below zero by mid-2021. Europe and the UK will release CPI data next week, and the UK will also announce the unemployment rate.

China

The US has increased pressuring China, President Donald Trump is considering banning the federal pension fund from investing in Chinese stocks. The news hit market sentiment, the Hang Seng Index and the CSI 300 Index fell by 1.79% and 1.28% respectively. On Friday, China released April figures for fixed investment, factory production, and retail sales, which have dropped 10.3%, 4.9%, and 16.2% YoY respectively; while the new loan figure in April was 1.7 trillion RMB, beating market expectations. China will announce 1-year and 5-year LPR interest rates, market expects the rates to remain unchanged.

<Harris Fraser Research Team>

US

Covid-19 continued its spread across the globe, but the outbreak epicentres of Italy and the USA alike are showing signs of easing. The number of freshly confirmed cases in the US has only increased by 2.5% on Thursday, which is the smallest single day percentage increase since April. However, President Trump suggested that social distancing measures might extend until summer. After the recent rally, US stocks corrected over the past 5 days ending Thursday, the three major indexes fell slightly by 0.1 - 0.5%. A focus in the market was the negative oil price. In the past week, May contracts of WTI oil futures fell and briefly reached negative $40 per barrel, resulting in large losses for numerous traders & brokers. In terms of economic indicators, the number of initial unemployment claims reached 4.43 million last week, totaling 26.5 million over five weeks. The US Congress passed the fourth epidemic-related bill of 484 billion U.S. dollars, the total fiscal stimulus is now around 3 trillion U.S. dollars. Next week, the US will announce 2020 Q1 GDP, market expects the QoQ growth to fall by 3.7% annualised; in addition, the US will also announce the ISM manufacturing figures and consumer confidence index. The Fed will hold the interest rate meeting next week.

 EU

European markets followed the global market correction, over the past 5 days ending Thursday, only the UK FTSE recorded a slight increase of 0.69%, while the German and French stock indexes fell around 1%. As for the epidemic situation, Spain recorded the highest number of new infections and death in recent weeks, while the number of daily recoveries in Italy exceeded new infection figures for the first time. The European Central Committee will consider accepting junk debt as collateral, as the European Union considers a 2 trillion Euro economic stimulation package, but the EU leaders’ summit failed to reach an agreement on the details of the economic stimulus. It was reported that German Chancellor Angela Merkel mentioned that the scale of counter-epidemic measures must be very large. Next week, the 2020 Q1 Eurozone GDP will be announced; In addition, the European Central Bank will also hold the interest rate meeting in the week.

China

Compared to global markets, the Chinese and Hong Kong stock markets lagged, the Hang Seng Index was down 2.25% and the CSI 300 Index fell 1.11%. Due to the covid-19 epidemic, China's GDP growth in the first quarter of the year recorded the first ever contraction since 1992, contracting 6.8% YoY and falling 9.8% QoQ. This week, the People's Bank of China lowered Loan Prime Rate (LPR) as expected, one-year and five-year rates were reduced by 20 and 10 basis points to 3.85% and 4.65% respectively. In addition, the Chinese Ministry of Finance announced an additional issue of 1 trillion in special debt quotas, market expects the government to further unveil economic stimulus measures. Next week, China will release manufacturing and non-manufacturing PMI data.

Department Activities:

Columns, media interview and online channels : “TVB News”,“TVB Big Big VIP”, “Now  FINTERVIEW”, “iCable Finance”, “iCable News”, “Capital”, “Edigest”,“SingTao Newspaper”, “Sing Tao Investment Weekly”, “Headlines News”  , “ET Net”, “Business Times”, “Quamnet”,” stockviva”and online videos produced by Harris Fraser Global Assets Management. (including but not limited to the above)

After consecutive months of losses, US equities regained foothold despite the ongoing epidemic, recording a strong rebound in April, S&P 500, Dow Jones, and NASDAQ were up 12.68%, 11.08%, and 15.45% respectively over the month.

The covid-19 outbreak in the US remains relatively severe, as we continue to see 5 digit new cases daily. That said, the rate of growth has gradually eased over the month, slowing down from the percentage growth in the teens to sub 5%. Recently, more citizens came out to protest against the ‘draconian’ lockdown measures, US president Trump echoed the protestors’ sentiment, calling governors to consider a gradual lift of the said measures.

While lockdown measures might be gradually lifted as the severity of the epidemic eased, it’s still too early to celebrate now, as even in the most optimistic scenario, it would still be highly unlikely for social activities to return to normal before June. Economic indicators also suggest that the recovery is not happening yet, manufacturing and services PMI are setting new lows, consumer confidence is weak, and employment data is still soft. With corporate earnings outlook revised down, the current valuation might be considered relatively expensive, we would not rule out the possibility of a correction in the short term, but the extensive liquidity in the market should still propel the market up in the mid to long term.

By Harris Fraser Research Team

US

The covid-19 death toll in the US has increased to more than 70,000, more than 20,000 of which were in New York State. US President Trump has expressed the desire to restart economic activities as soon as possible, reflecting the downward pressure on the US economy. Over the past 5 days ending Thursday, among the three major US stock indexes, the NASDAQ rose around 1%, while the S&P 500 and the Dow fell around 1% to 2%. In terms of economic data, initial jobless claims exceeded 3 million for the 7^th consecutive week, ADP data showed that US companies laid off a record high of over 20 million workers in April. Although the data shows a bleak economic outlook, the chairman of the US Federal Reserve Bank of Atlanta claimed that under the effect of economic stimulus, the United States is unlikely to experience a deep recession in the short term. Facing the pressure of huge fiscal expenditures, the US Treasury raised the forecast of bond issuance in the second quarter of this year to a record of nearly 3 trillion US dollars. US will release CPI and retail sales data next week.

 EU

The epidemic seems to be getting under control in Europe, many countries including Italy, Germany, and France have begun to lift their lockdown measures in stages. However, the European stock market saw some correction after the recent rally. Over the past 5 days ending Thursday, French, German, Spanish and Italian indexes fell 3.14% to 4.60%. The Bank of England maintained its policy rate unchanged at the record low of 0.1%, but hinted that it might consider further loosening next month. The European Central Bank President Lagarde mentioned the need to utilise unconventional policy tools during “extraordinary times”, market expects the loose monetary policy in the Eurozone to stay. Next week, 2020 Q1 GDP data for the Eurozone and the United Kingdom will be released.

China

Controversy about the origins of the covid-19 virus has raised Sino-US tensions once again, US President Trump also questioned whether China is fulfilling the provisions of the first phase trade deal. The series of negative news pressured the market downwards, the Hang Seng Index gapped lower on Monday, falling over the week. The latest news on Sino-US trade relations  were positive, it was reported that the top trade negotiators from both sides held a phone call on Friday, promising to create favourable conditions for the implementation of the trade agreement. China will announce data on CPI and fixed investment next week.

<Prepared by Harris Fraser Research Team>

Early in March, following the dramatic oil price crash, fixed income markets showed signs of liquidity drying up and an unprecedented market crash followed. While we issued a warning in the early days of the crash, we see the recent dip as an opportunity for market entry. In order to support the market, global central banks have unanimously adopted dovish monetary policies, the excess liquidity could likely provide adequate downside protection.

As recession fears loomed and interest rates bordered zero, credit spreads have widened significantly. This could be an entry point to the market, as the liquidity crunch and the deleveraging activity sent bonds to undervalued levels. Amidst the uncertainty in economic growth outlook, fixed income exposure could improve risk adjusted returns in the portfolio. As monetary policies are expected to stay dovish throughout the economic recovery, corporations are also expected to receive sufficient support from local governments in order to save employment figures, the relative downside is minimised. The overall outlook for fixed income at this level should likely be positive over the year.

Fixed income products produced positive results in August. The Bloomberg Barclays Global Aggregate Bond Index rose 2.03%, US Investment Grade, Emerging Markets US dollar Bonds, and US High-yield bonds rose 3.14%, 0.25%, and 0.40% respectively. Global trade tensions intensified over the month with no apparent signs of slowing down, investors seek lower volatility amidst global uncertainty, increased demand for high quality instruments such as investment grade bonds continued to contribute to the indexes in August. Despite compressed yields, we remain optimistic about the prospects of the fixed income markets.

After Trump announced new tariffs on another 300 billion goods from China on August 1, China has finally retaliated and announced an additional 5-10% retaliatory tariffs on $75bn of US goods, and will resume 25% tariffs on US automobiles on 15 December. Later, Trump retaliated, increasing tariffs by 5% to 15%-30%, some of which will be implemented during the Chinese National Day, which has a strong political implication. With the end of the trade war nowhere in sight, our view of the economic outlook towards the end of the year is relatively negative. As shown by the worsening economic indicators around the globe, global corporate earnings is expected to be further pressured in the 2 remaining quarters and the equity market will likely face greater volatility. Holding fixed income as the core investment can allow investors to navigate the investment environment in such turbulent times and limit the downside risk of the investment portfolio.

After the Fed rate cuts in July, many central banks across the globe followed. Notable ones include Reserve Bank of New Zealand, which cut 50 points, exceeding market expectations; India by 35 points to a 9 year low; Thailand by 25 points, the first cut in 4 years, and Philippines by 25 points which was the second cut in 2019. Looking forward, we expect both the Fed and the ECB to slash the rates again in September, as the economic indicators showed more weakness in the past month. Deriving from the interest rate futures, we are looking at possibly around 2 cuts from Fed before the end of the year, while the ECB is expected to follow suit and cut at least 0.2% in total further into negative territory in 2019. With central banks potentially entering an interest rate cut cycle, increasing bond exposure in the portfolio can also better capture the capital appreciation.

Another pushing factor for bond prices is the high demand from various investors, especially European and Japanese investors. German bunds and Japanese government bonds are very safe investments which are considered risk free, but as money flow increased, quantitative easing policies deployed, investors becoming more risk adverse, and various central banks cutting interest rates to negative levels, it drove bond yields down to unreasonable levels. German bunds are all negative yielding, while Japanese government bond are almost all in the negative territory apart from the 20, 30 and 40Y bonds. As investors would still want to capture positive return, most of them turned their attention to the currently higher yielding US$ denominated bonds which are still relatively safe. Thus, the global yields are falling due to increasing demand driving prices up, and the situation is likely going to continue in the mid-term as there are no alternatives for the relevant parties to invest in. This could also partially explain the rally in global aggregate bonds, investment grade bonds and T-bills, which rose around 2-3.6% over the month despite the falling equity markets.

We also note that the EM bonds and high yield bonds performed much poorer than their investment grade partners, which was mainly driven by concerns over general economy, EM liquidity and debt situation. As Argentina’s elections ended with an unexpected result, Argentine stocks and currency crashed on the surprise, Argentine debt yield skyrocketed as concerns over possible sovereign default mounted. Global investors were concerned if there would be any ripple effects in the EM investing universe as there has been unhealthy levels of debt in several EM economies. As the global macroeconomic environment worsens, the outlook for the relatively risky high yield bonds and EM bonds are less positive.

As the markets expects the global central banks to potentially enter a rate cut cycle amidst trade woes and economic slowdown, the global investment landscape will likely be symbolized by a higher volatility and downside risk in the equity market. Investors should consider adjusting their portfolio and include more high quality debt to limit volatility while still getting positive returns. The balanced portfolio may improve the risk-adjusted return.

Written by Harris Fraser Investment Research Team

Harris Fraser Investment Research Team embraces a top-down analytical approach to deliver a satisfying risk-adjusted return to meet the objectives of our clients. We start with macro-level research on an individual country, region, or sector before doing technical analysis like cross-market money-flow and trends to identify investment opportunities.

United States

The global epidemic situation remains severe, with the cumulative total cases exceeding 2.1 million. After a sharp rebound last week, the global stock market stayed in the ascending channel. The NASDAQ index in particular, representing the tech sector, led the market and rose significantly, gaining about 5.46% over the past 5 trading days ending Thursday, the Dow and the S&P 500 index also rose about 0.4% and 1.8% respectively over the same period. US President Trump instructed the White House to suspend funding to WHO, he also claimed some parts of the United States has passed the peak of the outbreak, announcing the decision to gradually lift restrictions on economic activities. However, on the other side of the planet, Japan Prime Minister Shinzo Abe announced a state of emergency until this year's May 6th. In terms of economic data, the latest initial jobless claims figure was 5.25 million, totaling over 22 million in the past four weeks. The Federal Reserve’s Economic Beige Book also showed that the overall US economy has contracted sharply, and the situation may further worsen in April. The chairman of the US Federal Reserve Bank of Richmond even claimed that the April unemployment figure in the United States may spike to 15%. In the crude oil market, Saudi Arabia said the country is open to future cuts, but OPEC estimates that crude oil demand will fall to its lowest level in 30 years, dropping below 20 million barrels per day. Even if all parties abide by the pledge to cut production accordingly, the daily production is still higher than the demand by around 3.7 million barrels. Next week, the US manufacturing PMI figures and Michigan market confidence index will be released.

Europe

Compared to the global equities, European stocks underperformed. Over the past 5 days ending Thursday, the UK, French and German stock indexes fell between 0.5% - 2.0%. As the epidemic in Europe and the United States showed gradual improvement, numerous European governments are formulating plans for business resumption. However, the UK government indicated that they would extend the lockdown measures for at least three additional weeks, the French government also intended to extend the epidemic measures for four more weeks. Regarding the European economy in tatters due to the epidemic, the European Central Bank (ECB) President Lagarde said that the ECB will take "every necessary measures” to support the economy, and the Bank is evaluating further increasing euro swaps quotas. In terms of fiscal policy, EU leaders are looking into ways to increase the budget in order to speed up the economic recovery process, details will be discussed on the upcoming call. Next week, the we will see more data from the region for manufacturing PMIs and ZEW survey expectations.

China

The Chinese and Hong Kong stock markets were steady this week, the CSI 300 index rose 2.4% in a week; while the Hang Seng Index stayed flat. Facing downward economic pressure, the Chinese government stepped up its countercyclical efforts, including the People's Bank of China’s (PBoC) lowering the MLF interest rate by 20 basis points to a record low. As for economic data, China’s first-quarter GDP economy recorded a contraction of -6.8% year-on-year, which is the first of its kind since the 1970s economic reforms. The PBoC stated that it will redirect credit facilities via targeted RRR cuts and re-financing efforts to support the expansion in the real economy, especially small and micro enterprises. Loan Prime Rate (LPR) will be announced next week, market expects the 1-year interest rate to lower by 20 basis points to 3.85%.

• Recent activities include : Harris Fraser held a Press Conference on “2020 Global Investment Market Outlook”, Attended Bloomberg Businessweek/Chinese Edition Top Fund Awards 2019
• Columns, media interview and online channels : “TVB News”,“TVB Big Big VIP”, “Now  FINTERVIEW”, “iCable Finance”, “iCable News”, “Capital”, “Edigest”,“SingTao Newspaper”, “Sing Tao Investment Weekly”, “Headlines News”  , “ET Net”, “Business Times”, “Quamnet”,” stockviva”and online videos produced by Harris Fraser Group. (including but not limited to the above)

The dramatic recovery in terms of economic indicators in China was the bright spot in the month, manufacturing and non-manufacturing PMIs have recorded strong rebounds from the horrendous February figure, both returning to the expansion zone. Work resumption figures also brought positive vibes to the market. According to official figures, more than 75% of companies have already resumed business, which implies that the virus impact may have passed its peak in China.

However, even as the former epidemic epicentre Wuhan gradually lifts its lockdown orders, it is still too early to be overly complacent, as we await for more economic data such as industrial production and profit figures to further validate the recovery. More importantly, as the epidemic spreads across the world, global demand should further fall, potentially threatening recession recovery. That said, as China is likely first to recover among major markets, with the ongoing fiscal stimulation plans, we could be looking at a v-shaped rebound in the country, we are positive on the Chinese market in 2020.