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>

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)

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)

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.

External shocks remain the main theme in the volatile market. As the revered covid-19 spreads across the globe, the outbreak is no longer limited to China, the economies of other major markets in Europe and Americas are all expected to take a hit, direct or indirect. Major international organisations including IMF and World Bank have revised their outlook for the year, citing a huge drop of economic activities in 2020 Q2 is to be expected. This would likely be noticeably worse for emerging markets, which are more likely to be dependent on industrials, exports, and tourism, all of which hit hard by the virus.

To make matters worse, numerous emerging markets themselves saw outbreaks in their own country, resulting in country lockdowns, halting economic activities for the time being with no end in sight. The situation is not expected to recover rapidly as confidence and sentiment are low. Until the epidemic situation peaks, we do not expect emerging markets to outperform in the short term, investors should stay cautious when considering investments in the relatively fragile market.

Amidst the terrible news in the month, the ray of hope came from the International Olympic Committee’s (IOC) decision, as the Committee reached an agreement with the Japanese government, deciding not to cancel the 2020 Tokyo Olympics, but rather postpone it for a year. Affected sectors had a formidable rebound as they have avoided the worst-case scenario of a complete cancellation.

However, epidemic affected sectors like tourism and consumer goods are not expected to fully recover from the virus impact, all the investment in anticipation of the Olympics will likely not be recovered within this year. This is further worsened by the widespread virus impact, likely leading to an expected global recession. As the positive factors dissipate, although there is still downside protection, with the Bank of Japan continued its direct support of the market via ETF purchases, we remain neutral on the Japanese market in 2020.

With numerous countries held under nationwide lockdown, economic activities thinned out, likely pushing the whole Europe into recession. Unsurprisingly, Eurozone manufacturing and services PMIs came in at 44.5 and 26.4 respectively, both staying in the contraction zone. The Eurozone Economic Sentiment Indicator and Consumer Confidence Indicator also marked large drops, these figures outlined a pessimistic outlook for economy in the region.

The biggest challenge for the region is the disjointed fiscal response to the crisis, governments from wealthier states refuse to act in unity, rejecting the pleas of Italian and Spanish governments to issue ‘Corona Bonds’ under the EU banner, the further North-South divide could damage the Union’s unity and prove detrimental to the economic recovery in the region. Overall, as the economy fundamentals are weaker with greater external reliance, we expect a longer recession and slower recovery in Europe even if the ongoing pandemic miraculously dissipates. 

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.