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.

Covid-19 infection figures in USA overtook every other country in March, handily breaking through the 100,000 mark, countermeasures such as social distancing and shelter-in-place orders were gradually adopted as cases spiked. The government was criticized for undermining the potential outbreak at the early stages and reacting too slowly. At the moment, eyes are on various economic figures, with emphasis on employment data, especially with the recent record high in initial jobless claims, which were magnitudes higher than peak figures back in 2008.

With sweeping control measures, economic activity is expected to further dampen, various studies from IMF and others predicted USA to have a flat year in economic growth, the Federal Reserve Bank of St. Louis President even predicted a peak unemployment rate of 30% in the country. The White House is now implementing an unprecedented level of fiscal stimulus, and more is expected to follow in April after the Congress returns from recess. Although the general economic outlook is far worse than how it was at the beginning of the year, valuations are at a much lower level, quality stocks could potentially offer investment opportunities in the mid to long-run.

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. 

United States

Recently, the situation in many epidemic-hit areas in Europe and the US have shown signs of easing, and global stock markets reacted and rebounded. Over the past 5 days ending Wednesday, the three major US stock indexes rose 10%. Although the covid-19 death tolls in New York and New Jersey have reached new record highs, the US government hopes that the country’s economy will resume to normal within four to eight weeks, public health specialists in the White House Public Health team are drafting a plan to safely reopen after the lockdown. In terms of monetary policy, the minutes from the Fed’s March meeting showed that the Fed was using emergency interest rate cuts to buy time for studying the feasibility of launching of new tools. US Treasury Secretary Mnuchin mentioned that the Fed will launch a loan programme for medium-sized enterprises this week to support them during the epidemic. There have been new developments in the US elections, and aspiring president candidate US Senator Bernie Sanders ended his presidential campaign, which means that former vice president Joe Biden will likely become the Democratic Party’s presidential nominee. Survey showed that Biden is expected to defeat Trump in a 49% to 41% vote. As for crude oil market news, OPEC + will hold an emergency meeting on Thursday to discuss production cuts, it was reported that Russia is preparing to cut crude oil production by 1.6 million barrels per day, the market will keep an eye on the oil price. Next week, the US will announce retail sales, economic leading index and the Beige Book.

Europe

With the growth of new cases slowing down, Italy and fellow countries are considering to relax their lockdown measures, Germany also began discussions on uplifting epidemic response measures. Over the past 5 days ending Wednesday, the UK, French and German stock indexes have rebounded about 4-8%. It was reported that the European Commission is looking at a coordinated approach to formally uplift the lockdown measures across the region, it is expected that the details will be announced after Easter. As for the UK, it was reported that the condition of the Prime Minister Boris Johnson, who is still in the intensive care unit, has improved. However, the outbreak in the country is still severe, and the daily number of covid-19 deaths has also set record highs. An official reckoned that the UK may extend its lockdown measures for another several weeks. The market will pay close attention to the European epidemic situation and the news on uplifting lockdown measures.

China

This week, Chinese and Hong Kong stock markets also made good recovery, but the rebound was slightly less than to European and American peers. The People's Bank of China announced lowering the reserve ratio for small and medium-sized banks in April 2020, releasing a total of about 400 billion yuan in long-term funds. Starting from Tuesday, the interest rate of excess deposit reserves of financial institutions in the central bank will also be lowered from 0.72% to 0.35%. Market expects that relevant measures will offer targeted help to small and medium-sized banks and enterprises affected by the epidemic. Hong Kong has also announced an epidemic relief plan of HK$ 137.5 billion, which is positive for market sentiment. In terms of economic data, China's foreign exchange reserves fell by US$ 46.1 billion in March, which is the largest decline in more than three years. China will release data such as 2020 Q1 GDP and fixed investment figures next week.

• 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”,“OrangeNews”, “Quamnet”,” stockviva”and online videos produced by Harris Fraser Group. (including but not limited to the above)

United States

After the strong but short-lived rally last week, global stock markets faltered in the face of the widening epidemic. Over the past 5 days ending Thursday, the Dow, S&P 500, and NASDAQ fell 5.05%, 3.92%, and 3.98% respectively. Just as President Trump has signed the record $2 trillion stimulus bill in order to stop the economic bleed due to the covid-19, House of Representatives Speaker Nancy Pelosi noted that the congress is already considering the fourth response package to combat the epidemic fallout. However, Treasury secretary Steven Mnuchin and Republican representatives are not committed to drafting an additional bill before fully implementing the current package, and any further floor vote will likely take place not earlier than mid-April until the House and Senate returned from recess. The COVID-19 situation is USA continues to grow as daily number of cases continue to grow at double digit percentages daily, all 50 states in the US has taken various measures including stay-at-home orders. As jobless claims continue to grow, markets remain concerned about the extent of economic recession in the country. Next week, University of Michigan Sentiment, CPI figures, and FOMC meeting minutes will be released, markets will keep an eye on the jobless claims as a proxy for the economic health.

Europe

After the amazing rebound last week, European equities once again came under pressure this week. Over the past 5 days ending Thursday, UK, German, and French indexes went down 0.55 – 3.00%. The 2 epicenters in Europe, Spain and Italy, have exceeded the 100,000 mark in confirmed cases. With both economies innately frail and at the brink of collapse, the two countries have called for joint European responses to the ongoing epidemic. The point of controversy being the joint recovery bonds, also known as corona bonds, which are joint debt issued to member states of the EU, this allows both debt-laden countries to fund any meaningful post-crisis economic recovery programmes. However, the proposals met great resistance from better-off members of the union, in particular Netherlands, France, and Germany. The strong opposition towards the new issue from the Netherlands proves to be a great obstacle, while France and Germany raised their alternative solutions over the corona bonds. The apparent North-South divide is likely next in line to present as a challenge to the union, as the former European commission president Jacques Delors warned. Next week, we will see more data on UK and German industrial production.

China

China and Hong Kong stock markets had a fair week, the Hang Seng Index dropped 1.06% over the week, while the CSI 300 Index stayed flat, slightly rising 0.09%. Regarding the situation of the epidemic, according to Chinese official figures, the number of locally transmitted cases was close to zero over the past week, and the former Covid-19 epicentre Wuhan begins to reopen over the week, marking the beginning of the end for the outbreak in the country. The PBoC have announced 100 bps of RRR cuts for qualifying banks, implementing in 2 phases effective as of April 15 and May 15, releasing 400 billion yuan to the market. As the latest PMI figures implies a swift recovery, the Chinese economy is poised to play catch-up for the lost progress in the first quarter. Next week, China will announce PPI, CPI, and money supply M2 figures for March.

• Recent activities include : Harris Fraser held a Press Conference on “2020 Global Investment Market Outlook”, AttendedBloomberg 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”, “SingTao Newspaper”, “Sing Tao Investment Weekly”, “Headlines News” , “ET Net”,“OrangeNews”, “Quamnet” and online videos produced by Harris Fraser Group. (including but not limited to the above)

 As global ex-China confirmed cases of the virus increased at an alarming rate, market sentiment rapidly deteriorated as worries of a global epidemic grows. The MSCI Emerging Market Index declined 5.35% in February.

2 months into the New Year and global external shocks showed no signs of slowing down. Just as China reported a slowdown in new cases of COVID-19, South Korea, Italy, Iran, and Japan picked up the ‘slack’ and reported an explosive rise in new cases. This heightened worries in falling global demand and supply chain disruptions, which could pressure emerging markets and mute potential rebounds in economic growth. In particular, most African countries, and a majority of Latin America are expected to suffer due to the softer demand in the world’s second largest economy.

External risks remain, and we stay neutral on EM in the short to mid-term. Until the complete impact on the global supply chain is better understood, we would suggest investors to exercise more caution before investing in the relatively fragile market.

Over the month, the Bloomberg Barclays Global Aggregate Bond Index was up 0.67%, US Investment Grade was up 1.34%, while Emerging Markets US dollar Bonds and US High-yield bonds fell 0.20% and 1.41% respectively.

In light of the spikes in volatility at the end of February, we expect fixed income to stay positive this year. Although the FOMC members earlier claimed that there is unlikely to be any changes to the policy rates in the near future, in an attempt to calm markets and provide liquidity, Fed Chairman Powell announced a surprising emergency rate cut of 50 basis points in early March. With the COVID-19 epidemic surging across the globe, it was expected most major global central banks should follow the Fed and provide further rate cuts to boost business confidence.

As the impacts of the supply chain disruption has yet to be fully reflected in the real economy, its threat to equity markets provides upside potential for fixed income products in form of future rate cut expectations. The theme in year 2020 remains heavily dominated by exogenous risk factors and external shocks, fixed income exposure may reduce volatility in the portfolio, reducing downside risk and improving risk adjusted return.

United States

Global stock markets rebounded this week, US equities had a great week. Over the past 5 days ending Thursday, the Dow, S&P 500, and NASDAQ gained 12.27%, 9.16%, and 9.05% respectively. As for virus relief measures, the two parties in Congress are close to reaching a deal on the largest stimulus package in US history, driving the global stock market up. In particular, the Dow has recorded the largest daily gain since 1933 in the week. Market expects the House of Representatives to swiftly approve the US$ 2 trillion stimulus bill on Friday. In addition, members of both parties in Congress also wrote to Trump requesting all tariffs to be postponed for 90 days, the Federal Reserve is also expected to inject trillions of dollars to the US economy for further support. As for the COVID-19 epidemic, the United States has surpassed China and became the country with the most number of confirmed COVID-19 cases in the world. More officials have also contracted the disease globally, including Prince Charles of the UK and the Deputy Prime Minister of Spain. Outside the US, the G20 also pledged to use every means to fight the outbreak. As for the latest economic data, initial jobless claims figures in the US last week has soared to a record high of 3.28 million, which is more than four times higher than the previous record set in 1982. US and global PMI data will be released next week, which should shed more light on the global economic outlook.

Europe

European stock markets also rebounded significantly. German and French markets rose by more than 16% over the past 5 days ending Thursday, while UK equities also rose more than 12%. After multiple countries increased economy stimulus, the Bank of England also kept the benchmark interest rate at a record low on Thursday, the central bank noted that it could further increase asset purchases if necessary. As for the epidemic situation, Italy’s new COVID-19 cases on Thursday saw the largest daily increase up to date, and the situation remains severe. The UK has entered a national lockdown and demanded citizens to stay at home. Regarding economic data, the Eurozone consumer confidence index in March fell to negative 11.6 from negative 6.6 in February. European Central Bank Vice President Guindos said that the COVID-19 epidemic will send Europe into recession, but it should be short-lived and expects a rebound in the second quarter. Eurozone will release data on inflation and unemployment next week.

China

China and Hong Kong stock markets had a weaker rebound this week compared to global markets. The Hang Seng Index rose 2.99% over the week, and the CSI 300 Index rose 1.56%. It was reported that according to Chinese Ministry of Foreign Affairs officials, China is implementing a US$ 344 billion package to combat the COVID-19 epidemic, with fiscal measures as the mainstay and tax reliefs of about RMB 1 trillion. The market expects the 7-day reverse repo and a one-year MLF interest rate to further reduce by 10 bps. Next week, China will announce the official March manufacturing and non-manufacturing PMIs, as well as the Caixin Manufacturing and Services PMI Indexes for March.

• Recent activities include : Harris Fraser held a Press Conference on “2020 Global Investment Market Outlook”, AttendedBloomberg 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”, “SingTao Newspaper”, “Sing Tao Investment Weekly”, “Headlines News” , “ET Net”,“OrangeNews”, “Quamnet” and online videos produced by Harris Fraser Group. (including but not limited to the above)

United States

US stocks had abnormally high volatility this week. At the beginning of the week, it was reported that major global central banks would work together to stabilize the market. The news reversed the original pessimism in the market, sending US stocks up for the largest single day percentage gain in 14 months on Monday. However, the subsequent announcement of an emergency 50-basis-point cut in the policy triggered market worries that the financial crisis may recur, US stocks have once again plummeted on that day, and in the two following days saw sharp fluctuations in the market. After the Fed decided to carry out the first emergency rate cut of 50 basis points in more than a decade, the yield on 10-year US Treasury bond yield fell below the 1.00% level, reflecting large fund flows into US debt to reduce risk exposure. Another focus of the market is the ‘Super Tuesday’ of the Democratic Party presidential primaries. As the results came out, former Vice President Biden won 10 states and increased his lead, the news brought positive sentiment to the markets. In addition, some candidates, such as Pete Buttigieg and Mike Bloomberg, announced their withdrawal and voiced support for Biden. It is expected that the future development in the DNC primaries will be clearer. Next week, data on the US CPI, Michigan Consumer Sentiment, and the NFIB Small Business Optimism Index will be announced.

Europe

Over the past 5 days ending Thursday, the European stock market remained weak, with UK, French, and German stock markets falling by 1.34%, 2.45%, and 3.42% respectively. The rapid spread of the COVID-19 epidemic in Europe worried markets, investors feared countries like France and Italy might enter recession. In response to the development of the epidemic, Italian Prime Minister Conte said that the scale of aid for the epidemic will be increased to 7.5 billion euros, the funds will be used to support families and businesses hit by the epidemic, so as to ensure that no one loses their job due to the virus. As for economic data, the final February Eurozone service PMI rose slightly from 52.5 in January to 52.6, indicating that the February data might have yet to reflect the impacts of the epidemic. The European Central Bank will hold its interest rate meeting next week, the market focus will be on whether the Bank follows the Fed and deepens monetary easing.

China

Compared to the global stock market, the Chinese and Hong Kong stock markets have performed well this week, with A-shares being the best performer. As the COVID-19 epidemic continues to spread across the world, market is hoping that more stimulation measures will be introduced in the Mainland, including monetary policies such as interest rate cuts and RRR cuts, China's 10-year government bond yield fell to a new low since 2002. While presided over a meeting of the Central Leadership Working Group on Response to the COVID-19 Epidemic, State Premier Li Keqiang called for careful and effective strengthening of the epidemic prevention and control. On the other hand, under the increasing downward pressure on the Mainland economy, the work resume ratio is also an economic data worthy of attention. The Ministry of Agriculture in China stated that the spring planting is on track, and expects to meet the food production target despite the epidemic. China will announce February CPI and PPI data next week.