Perspective

How the coronavirus is affecting Asian markets?


Market Review

In March, global markets experienced severe fluctuations and US equity market also slipped into a bear market, triggering unwinding activities given investors’ concerns of the liquidity in bond markets. 

Some asset classes which are used to be relatively stable i.e. REITs also affected, and recorded unusual technical corrections.  Many companies with sound fundamentals suffered from oversold.

Asian Equities Market

We believe in the short term, investment environment will remain difficult. 

In the longer term, we have re-entered into a zero interest rate era, with central banks continue to inject liquidity into the market and US Fed has announced the implementation of unlimited QE.

Therefore, income generating asset classes such as REITs should have great upside potential if the spread of coronavirus is suppressed.  Indeed, these asset classes have rebounded nearly 30% from their lows when market sentiment slightly improved.

However, we believe uncertainties remain in equity markets because companies are expected to cut dividend payments in the future. 

Asian Fixed Income Market

Given the unlimited QE, we believe corporate bonds may become the major beneficiary.  Although the US corporate bonds are the direct beneficiaries under the unlimited QE, investors will resume confidence in corporate bonds given the improvement of liquidity as a result of the unlimited QE, which may also benefit Asian corporate bonds. 

High quality and high rating short-term corporate bonds are in favour.  Within these short-term bonds, some offer yields as high as +10%. 

These companies’ profitability would also suffer due to the slowdown of economic growth, but they have ample financial capability in the short term and default rate is relatively low.  As such, we think the current level is very attractive. Overall, market risks remain as long as the threat of coronavirus continues unabated.  However, we found attractive opportunities in bond markets after the unlimited QE implemented by the Fed.

 

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