Stocks get a lift on stimulus measures amid ongoing virus threats

Most shares gain after a week of wild swings and unprecedented measures taken by policymakers, but risks remain.

This nearly empty trading floor in a bank in the Malaysian capital, Kuala Lumpur, is one of many businesses around the world affected by the coronavirus on March 17, 2020 [Samsul Said/Bloomberg]
This nearly empty trading floor in a bank in the Malaysian capital, Kuala Lumpur, is one of many businesses around the world affected by the coronavirus on March 17, 2020 [Samsul Said/Bloomberg]

Kuala Lumpur, Malaysia – Most Asian stocks rebounded on Friday, earning a temporary reprieve following a turbulent week in financial markets as the world scrambles to fight the coronavirus pandemic, while oil prices staged a record climb.

Central banks including those in the US, Europe and Australia have unveiled extraordinary measures this week to limit the damage to their economies as governments worldwide intensify efforts to contain the spread of the virus by closing borders, banning travel and ordering shops to shut.

China is reportedly preparing to raise nearly $400bn in local government bonds to boost infrastructure spending, though the central bank unexpectedly kept its key interest rate steady, defying market expectations of a reduction.

The global frenzy started with the US Federal Reserve’s emergency move to slash its key interest rates to near zero while resuming its bond-buying programme of at least $700bn.

Also this week, the European Central Bank launched a 750 billion-euro ($807bn) bond-purchase plan to cushion the blow of the fallout, while the Reserve Bank of Australia lowered interest rates to a record low of 0.25 percent as the country risks slipping into its first recession in 30 years.

The Bank of England cut its interest rates to an all-time low on Thursday and said it will buy an additional 200 billion pounds ($236bn) of bonds, which will help keep borrowing costs for commercial banks and companies down and effectively pump more cash into the economy.

Smaller economies from Indonesia and the Philippines to Taiwan also lowered interest rates on Thursday to mitigate the impact of coronavirus-induced disruptions.

Saving some of their bullets

“Across the board, there is a lot more accommodation coming from the monetary policy front,” Wellian Wiranto, an economist with OCBC Bank in Singapore, told Al Jazeera. “Central banks are measured in their response, they want to save some bullets as well.”

For most governments, growing the economy this year would be challenging, he said.

Share markets in the Asia Paciic region appeared to take some solace from the flood of cash from governments and central banks.

South Korea’s Kospi Index led the region’s gains with a 7.4 percent jump on Friday, but still lost more than 13 percent over the week.

The Hang Seng Index in Hong Kong gained 5.1 percent, recouping much of the week’s losses, but still falling nearly 2.5 percent over the last five sessions.

Australia’s benchmark ASX 200 Index rose 0.7 percent, China’s Shanghai Composite Index increased by 1.6 percent, and Singapore’s Straits Times Index surged 4.3 percent.

Trump’s oil intervention

Oil prices recorded their biggest single-day gain after US President Trump indicated he could intervene in the price war between top producers Saudi Arabia and Russia.

Brent crude was up 7.1 percent to $29.13 per barrel in late Asian trading.

European stocks were also heading higher, with the pan-continental Stoxx 600 index surging by 4.7 percent in early trade. The main indexes in the United Kingdom, France and Germany were up between 5.5 percent and 6.5 percent.

Still, analysts warned that the recovery in stock prices might be short-lived as the death toll from the pandemic continues to climb.

“Arguably, a slew of emergency central bank action [mostly unscheduled], has helped to assuage the worst of fears with regard to an unchecked meltdown,” Vishnu Varathan, head of economics and strategy for Asia and Oceania Treasury at Mizuho Bank, told Al Jazeera.

Even with the latest gains in share markets, investors’ psyche of “cash is king” remains, he said.

Investors gripped by fear amid the economic fallout from the outbreak have been selling all assets perceived to be risky to raise cash in recent days.

“There is little doubt that market conditions remain stressed. And by extension, the recovery in sentiments overnight is tentative, if not fragile,” said Varathan.

Airlines and planemakers are among the most vulnerable to the sharp slowdown in economic activity as governments try to limit cross-border travel to slow the spread of the virus.

Hong Kong’s Cathay Pacific Airways became the latest carrier to take drastic steps to preserve cash. It said it was stopping most of its passenger flights in April and the coming months, while Air Canada said it was temporarily laying off 5,100 employees.

But some airlines are receiving a lifeline. New Zealand and the US are offering some of their carriers bailouts but with strict conditions attached.

Source : Al Jazeera

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