While developed economies barring the US saw infection figures fall, epidemic situation in emerging economies continued to worsen. Emerging markets went sideways after the strong performance in the previous month, rising 0.58% in May. 
The latest ex-US epicentres of infection have now officially shifted from Europe to emerging countries like India, Brazil, and Russia alike, with new infection figures on the continued rise. Emerging economies are hit by the double whammy of recession and the rapidly advancing covid-19 epidemic, especially with falling global demand amidst the epidemic induced recession in developed markets. If forward looking economic indicators reflect anything, emerging markets are likely deep in recession, business confidence remain low, and there is still a long way away from a full recovery.
Marred with the array of risks in form of weaker economy recovery, ongoing epidemic, and rising Sino-US tensions, we expect emerging markets to remain under pressure in the short to mid-term. That said, we could see potential opportunities in ASEAN markets and possibly Latin American markets in the longer horizon, as these are expected beneficiaries in rising trade tensions and relocating production lines. We do note Vietnam as one of the prime candidates with its controlled epidemic situation, high growth and lower valuation, thus, viability as a China alternative. Hence, a positive outlook for the frontier market over the year.

With the number of new cases falling to new lows during the month, the epidemic in Japan seems to be over, the Japanese government decided to call an end to the State of Emergency in late May. In anticipation of the lockdown lift, equities continued the strong performance expecting swift recovery from the epidemic.

However, economic data tells a different story, with various leading indicators still lingering in negative territories. As the global epidemic situation has yet to be curbed, tourism and consumer discretionary sectors suffered from travel bans, lockdown orders, and weakening consumer confidence across the world. While the local markets should receive continued support from the Bank of Japan with the ongoing quantitative easing, with the continued economic recession in 2020 Q1, we remain relatively sceptical of the prospects of rapid economic recovery on the island country, hence the neutral outlook on the Japan market.

<Harris Fraser Research Team>

United States

There are early signs of a second wave covid-19 infections across multiple geographies in the United States, raising market concerns over potential delays in restarting the economy, pushing the Dow down by 1861 points or nearly 7% on Thursday, while the S&P 500 and the NASDAQ also fell more than 5% that day. At the moment, the total covid-19 cases in the US exceeded 2 million, and we saw new cases accelerate, States like Florida saw new cases grow at a higher rate than the 7-day average. However, US Treasury Steven Mnuchin stated that even if there is a second wave outbreak, the United States can’t shut down the economy again. The uncertainty in the US economic outlook is reflected in the Fed’s statement this week, Fed Chairman Jerome Powell said the Fed will maintain near zero interest rates in the coming few years, while also maintaining the current rate of balance sheet expansion. The US non-farm payrolls data released earlier were encouraging, market expects the upcoming May retail sales data and the Conference Board Leading Economic Index will show a reverse to the April downtrend.

 Europe

European stocks mirrored the global stock market's decline on Thursday, the UK, French, and German equity indexes fell 3.7% - 4.2% over the past 5 days ending Thursday. New information came in regarding the UK-EU trade agreement, British Prime Minister Boris Johnson and European Commission President Ursula von der Leyen are expected to meet on 15^th June, it was also reported that both sides will initiate a weekly trade deal negotiation, for a total of 5 times starting from late June. It was also rumoured that the extension of the Brexit transition period was officially taken off the table on Friday. Market expects both the UK and the EU to speed up post-Brexit trade negotiations in order to break the deadlock over the past few years. Next week, the United Kingdom will release the May CPI figures, and the Bank of England will also hold an interest rate meeting, market expects interest rates to remain unchanged, but an increase in the scale of asset purchase plans is likely.

China

The Chinese and Hong Kong stock markets had relatively stable performances this week. The CSI 300 Index slightly rose 0.5% over the week, while the Hang Seng Index fell 1.89%, outperforming their European and American counterparts. In terms of Sino-US trade relations, although both sides have yet to reach consensus on the issue, the first phase trade agreement is still observed, as China continued her purchase of soybeans from the United States. China's May export data was better than expected, falling only 3.3% YoY in US dollar terms, which was a notch higher than the market consensus of a 6.5% drop. Inflation data also showed benign development, the May CPI saw a 2.4% YoY increase, which was milder than both the expected 2.7% and the prior value of 3.3%. China will release May data on fixed investment, industrial production and retail sales next week, market expects most data to improve.

<Harris Fraser Research Team>

Even as the epidemic continue to run rampant across the country, numerous states are already uplifting their lockdown measures, including covid-19 epicentres like New York and New Jersey despite continued growing cases. As the global pandemic has lasted for more than 4 months, markets and the society in general have already adopted to the “new normal”, which has minimised the impact to the investment market despite reopening under the “un-flattened curve”.

In terms of economic figures, the US outlook are full of uncertainties as we have yet to see a stronger rebound in various leading indicators, PMIs stayed in the contraction zone, while confidence levels remain far lower than previous levels. Despite the weaker fundamentals, we see 2 main reasons for the stock market to continue its strong performance: anticipation of economy restarting, plus excess liquidity flooding the capital markets. In particular, we stay positive on technology and healthcare sectors, as they remain robust with minimal levels of earnings revised, further bolstered with the prospects of long term structural growth.

<Harris Fraser Research Team>

United States

Despite the negative news, markets retained its optimism, and global equities continued to trend up, the NASDAQ index even briefly hit a new intraday high, but failed to close above that. Over the past 5 days ending Thursday, 3 major equity indexes rose between 2.63% - 3.47%. Against the backdrop of rising Sino-US tensions, riots broke out in many cities in the States, State governments ordered curfews to curb the situation, yet it remains unsubdued. Moreover, the latest epidemic development in the United States remains tough, with the latest infection figures reaching 1.87 million, alongside more than 108,000 deaths. Some of the economic data hinted at a bottoming out US economic outlook, as the ISM manufacturing index rebounded from the low of 41.5 last month to 43.1 in May. On a side note, it was reported that the White House officials in the United States are drafting a stipulation that the scale of the next round of economic stimulus plan should not exceed US$1 trillion. Next week, the Federal Reserve will hold an interest rate meeting on Thursday, market expects it to be kept unchanged; In addition, the United States will also release data such as CPI and market sentiment.

 Europe

In anticipation that the European Central Bank (ECB) may increase the scale of asset purchases, European stocks performed relatively well in recent weeks. The final announcement from ECB exceeded expectations in the scale of asset purchases, further improving market sentiment, driving European stocks up. Over the past 5 days ending Thursday, anticipating capital injections from the ongoing quantitative easing, German and French indexes went up 6.63% and 5.04% respectively, while the UK index gained 1.97%. After the ECB interest rate meeting, the policy rate remained unchanged, while the scale of the Pandemic Emergency Purchase Programme (PEPP) was increased by 600 billion Euros, and the plan period was extended to the end of June 2021. The market will focus on whether the funds are sufficient to relieve the downward pressure on the European economy. The Eurozone will announce the final figures of 2020 Q1 GDP next week.

China

The Hong Kong and Chinese stock markets performed well over the week, the CSI 300 index rose more than 3% in the week, while the Hang Seng Index gained over 7%. It was reported that China has suspended imports of certain US agricultural products, while the US further toughened its stance towards China, potentially jeopardizing the earlier first stage Sino-US trade agreement. Despite the deterioration of Sino-US trade relations, anticipating various fiscal measures supporting the economy, speculation in the market continued. The expected dual listing of China concept stocks in HK further supported the stock price of the Hong Kong Stock Exchange, boosting the local market performance. Next week, China will release data such as the May consumer price index, aggregate financing, and new RMB loans.

<Harris Fraser Research Team>

US

The Sino-US relation grew tenser by the day, but global equities still went up over the week. Over the past 5 days ending Thursday, the Dow rose 3.36%, the S&P 500 gained 1.96%, while the NASDAQ slightly fell 0.07%. As for the epidemic situation, cumulative covid-19 cases has exceeded 5.8 million, with the latest infection epicentre moving to developing countries such as Brazil and India. Japan, which saw its outbreak earlier, has announced an end to the state of emergency. On the economic front, the US 2020 Q1 QoQ economic growth annualized was revised down to -5%. In the latest report, New York Federal Reserve officials claimed that US companies lost $1.7 trillion in market value due to the Sino-US trade war, the report further expects that the investment growth of these affected companies will drop nearly 2% YoY by the end of 2020. Next week, the US will release the May figures for Nonfarm Payrolls and also the ISM non-manufacturing index.

 Europe

This week, European stocks outperformed global markets, the UK, French, and German indexes went up 3.38%, 7.35%, and 6.39% respectively over the past 5 days ending Thursday. The UK and the EU will continue trade negotiations next week, the EU Chief Brexit negotiator Michel Barnier expects a conclusion by then. Earlier, the EU trade commissioner Phil Hogan claimed that the UK might have given up on reaching a trade agreement. On the economic front, there seems to be signs of improvement, with the Eurozone economic confidence index rebounding from the earlier record low. Next week, the European Central Bank (ECB) will hold an interest rate meeting, economic data such as unemployment rates and manufacturing PMIs will also be released.

China

Against the background of rising Sino-US tensions, Hong Kong equity performance has been affected, but still stayed relatively stable over the week, the Hang Seng Index slightly gained 0.14%, while the CSI 300 grew 1.12% over the same period. The “Two Sessions” have formally ended, the National People's Congress (NPC) did not set a target economic growth for the year. Premier Li Keqiang pointed out that the "six guarantees" are the focus of this year's "six stabilities". In addition, he claimed that if the key tasks were met, China could still see positive economic growth in 2020. Data such as Caixin Manufacturing PMI will be released next week.

<Harris Fraser Research Team>

With the virus threat fading out in the country, Chinese markets continued to see gains in April, the CSI 300 Index and the Shanghai Composite Index were up by 6.14% (6.43% in USD) and 3.99% (4.27% in USD) respectively, while the Hang Seng Index also gained 4.41% (4.42% in USD).

In terms of economic fundamentals, China seems to have started the recovery from the covid-19 impact, various PMI figures have mostly recovered to pre-crisis levels, other indicators like industrial production, retail sales and export figures have bottomed out, solidifying China’s position as the first major economy to exit the epidemic cycle. The actual epidemic in China has seemed to come to an end, the meeting dates of the previously delayed National People’s Congress have finally been confirmed, implying that the decision makers of the Chinese government determined that situation is the safe enough for the most important people. Moreover, additional fiscal and monetary stimulus is expected, which could further drive the whole economy forward.

Admittedly, risks still exist, especially with foreign demand staying weak and relationships between China and other countries turning sour as countries seek blame for the global outbreak. With the sabre-rattling between China and US, a potential repeat of the dreaded trade war does worries many. Overall, the economy in China remains in recovery mode and seems en route to pre-crisis levels, but one should not underestimate the potential risks.

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>

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

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>