False dawn? Stimulus moves lift Asian stocks, but Europe tumbles

Kuala Lumpur, Malaysia – As governments and central banks around the world roll out economic stimulus plans amounting to trillions of dollars to buttress their people from the ravages of the coronavirus, investors have piled into risky share markets this week.

On Friday, Asia’s main stock indices posted strong gains following their crash earlier this month, while oil prices flatlined, and European shares fell sharply.

Analysts warned that the bounce in share prices this week may prove to be a false dawn, as the worst of the economic carnage stemming from the sudden halt in business activities as part of coronavirus containment measures has yet to come.

“The gains in Asian equities this week do not truly reflect market confidence that the coronavirus outbreak has peaked and that the economic turmoil is over,” Han Tan, market analyst at FXTM, told Al Jazeera.

“The risk that this rebound in stock markets may prove to be a false dawn, one fuelled by volatility rather than fundamentals, warrants a cautious stance by investors,” he said.

Among the region’s larger markets, Japan’s benchmark Nikkei 225 index rose 3.88 percent, capping a 17 percent surge over the week, which according to Refinitiv data, was its biggest weekly jump on record.

Elsewhere, South Korea’s Kospi index climbed 1.87 percent, China’s Shanghai Composite Index was up 0.26 percent, while Hong Kong’s Hang Seng Index increased by 0.56 percent.

Singapore’s Straits Times Index gained 2.16 percent after its government launched its latest massive economic stimulus programme. 

Smaller markets in Asia also traded higher, with Indonesia’s Jakarta Composite Index surging by nearly 8 percent around midday. Thailand’s SET Index rose 2.28 percent, while Malaysia’s FTSE Bursa Malaysia KLCI was up 1.68 percent after its government announced a $58bn economic stimulus plan.

In early European trade, the main stock indices in Frankfurt, Paris and London were down between 2 percent and 4 percent. 

Oil under pressure

Oil prices were mixed, with Brent crude initially gaining 0.8 percent to $28.88 per barrel, but then dropping by 1.4 percent from Thursday. US West Texas Intermediate added 2.2 percent to $23.03 per barrel. Over the week, oil prices have changed little, and remain at roughly half their levels of late February.

Analysts say any further increase in oil prices will likely be capped by the flood of supply arising from a price war between top producers Saudi Arabia and Russia as they fight for global market share. The pressure on prices is being made worse by the collapse in energy demand as much of the world shuts down.

More countries are telling their citizens to isolate themselves and are restricting non-residents from entering their borders as cases of the outbreak continue to climb globally, suggesting that the battle against the pandemic is far from over.

The effect of shutdowns in the US was reflected in its latest jobs figures. More than three million Americans filed new claims for unemployment insurance last week, shattering the previous record as the first wave of coronavirus layoffs hit the US economy.

Following an historic $2 trillion spending package approved this week by the US Senate, which is now due to be debated by the House of Representatives, India announced its own stimulus measures aimed at cushioning its economy from the expected sharp decline in activity.

New Delhi is planning to spend 1.7 trillion rupees ($22.6 billion) on cash transfers and food handouts to protect the country’s poor from the fallout of the pandemic. India is on a 21-day total lockdown for three weeks which started on Wednesday to curb the spread of the virus.

Capital Economics said in a note that the package, which amounts to 0.7 percent of the size of India’s economy, “is a necessary start but much more will need to be done”.

“First and foremost, the food handouts won’t be enough to tide over the poorest households for the entirety of the three-week lockdown, let alone if it gets extended,” the research group said.

India’s benchmark SENSEX share index was down 0.25 percent around midday.

Singapore stimulus

Singapore’s government unleashed a record $48.6bn Singapore dollar ($33.8bn) spending package on Thursday to protect its economy, which it has projected to shrink by as much as 4 percent this year. The latest package is on top of the $6.4bn Singapore dollar ($4.5bn) spending already announced by the government last month as part of the 2020 annual budget.

In total, the government’s spending plans are the equivalent of 11 percent of the size of its economy.

“Singapore’s second package yesterday was a bazooka and will help workers and firms ride out this crisis,” Chua Hak Bin, regional thematic macroeconomist with Maybank Kim Eng, told Al Jazeera.

“The fiscal support will reduce job losses and the extent of unemployment, but will not be able to lift [economic] growth or the corporate revenue line,” he said.

One of the hardest hit Singaporean companies has been its flag carrier, Singapore Airlines (SIA), which has said it will slash 96 percent of scheduled passenger capacity until the end of next month while grounding 138 of 147 planes.

SIA on Friday proposed to raise a total of $8.8bn Singapore dollars ($6.1bn) from selling rights shares and convertible bonds that will be underwritten by the country’s sovereign wealth fund Temasek, as carriers around the world are hurt by the border closures globally.

But even with all the massive spending packages by various governments and extraordinary monetary measures taken by central banks globally, the ultimate solution to truly arrest the crisis will only come through the complete containment of the coronavirus, analysts said.

“Monetary and fiscal policies are ill-equipped to solve a public health crisis,” Alvin Liew, senior economist at United Overseas Bank in Singapore, told Al Jazeera.

“The one critical element that determines the speed of recovery from this global economic crisis will largely depend on how successful the health security measures will be to contain the pandemic so as to allow normal economic activities to resume.”