Some share markets rebound after US plunge, but concerns linger

Kuala Lumpur, Malaysia – Most share markets in the Asia Pacific region extended their recent losses on Tuesday after one of the biggest falls on record on Wall Street, as countries around the world took measures to deal with the spread of coronavirus.

The continuing falls in share prices indicate that many investors prefer to hold cash, analysts said, while the prospect of a prolonged health crisis raises the spectre of a US economic recession, defined as two consecutive quarters of a contraction in an economy.

But some markets in Asia headed higher as they rebounded after steep recent losses, while early trading in Europe also saw markets post gains. Gold prices fell, while oil prices climbed.

US President Donald Trump said on Monday the world’s biggest economy may be headed into a recession, and that the coronavirus pandemic may continue to affect people’s lives and businesses well into August or later.

His comments exacerbated the stock market selloff following the panic caused by the US Federal Reserve’s massive interest rate cut on Sunday, plunging US stocks into their biggest daily decline since the 1987 market crash.

In Asia, the Japanese benchmark Nikkei 225 index ended little changed, while Australia’s S&P/ASX 200 index rebounded with a 5.3 percent gain on Tuesday, according to Refinitiv data, after suffering its worst one-day drop in decades the day before.

Singapore’s Straits Times Index slid 0.37 percent. Hong Kong’s Hang Seng Index climbed 0.87 percent, and China’s benchmark Shanghai Composite Index was almost flat.

Choppy waters ahead

“The market is still going to be volatile, sentiment is still bearish,” Benny Lee, chief market strategist at EquitiesTracker Holdings, told Al Jazeera. Investors are mostly selling shares rather than buying, he said. “It’s a knee-jerk reaction as most of us have not seen a pandemic before.” 

The Philippines closed trading on its stock exchange in response to the viral outbreak, the first country in the world to do so. The government also quarantined the entire island of Luzon – the country’s largest with a population of approximately 57 million people.

Meanwhile, the key share indices in Germany, France, Italy and Spain jumped between 3.2 percent and 5 percent.

Despite the gains, investors said they remain cautious.

“There are still a lot of uncertainties. The message from the US market is: [the authorities] have not done enough and investors want more to be done,” Danny Wong Teck Ming, chief executive officer of fund management firm Areca Capital, told Al Jazeera.

“Gold is also down, investors are raising cash. This is a volatile time. You see a lot of worried people selling everything. I think this is irrational,” Wong said.

The price of gold, traditionally seen as a safe-haven asset during volatile economic periods, has slipped below $1,500 an ounce in recent days as nervous investors fled financial markets altogether. The widespread selloff was motivated by fear as the scale and economic damage from an evolving coronavirus remained unknown, analysts said.

Spot gold – the price sellers demand for immediate delivery – dropped 1.15 percent to $1,496.88, its lowest level in nearly three months.

Doing the unthinkable

More countries are taking drastic measures that were previously unimaginable to slow the spread of the pandemic as the number of patients infected by the virus continues to rise.

Malaysia announced plans to implement a two-week restriction on movement beginning Wednesday during which non-essential businesses and schools have been told to shut, and public gatherings ranging from religious prayers to sports events are halted. Shares in Malaysia fell 1.3 percent.

In the US, Trump released national guidelines on Monday to control the spread of the virus, advising against gatherings of more than 10 people and recommending people to shun discretionary travel, bars, restaurants and food courts.

Without having a sense of how much more the pandemic will paralyse economic activities, some investors said they are selling most assets to seek refuge in cash for the time being.

“Traditional trading methods and technical analysis may prove to be poor strategies in a time of such wild moves. Risk management and proper allocation of cash in the investment portfolio is perhaps more important,” Margaret Yang Yan, a market analyst at CMC Markets Singapore, wrote in a note.

“The economic and political uncertainty resulting from COVID-19 is shadowing the entire financial market, and this could last for some time.”

Oil prices rebounded, with the benchmark Brent crude futures rising 2.4 percent to $30.77 per barrel, after briefly dipping below the $30 mark, a steep plunge from more than $59 per barrel less than a month ago.

Investors do not expect Tuesday’s gains to last, after Saudi Arabia and Russia began a price war after failing to agree on output cuts earlier this month, prompting Saudi Arabia to say it will dramatically boost production.