After some weeks of being cast aside by optimism and better than expected economic data, the economic effects of the coronavirus pandemic has crept back into the limelight, pressuring global financial markets lower. Plans for a wider reopening of businesses in the US raised concerns as the country continues to face surging rise of cases. The US now has more than 2.6 million reported cases, and close to 130,000 fatalities as it continues to grapple with containing the virus. Amidst the rise in uncertainties, Gold jumps back into demand, rising more than 2% last week.
In the news
- Global financial markets slid lower for the 2nd week as concerns surrounding the surge in cases re-emerged, causing a stumbling block for global economies looking to reopen its doors.
- The US, who continues to grapple with containing the pandemic, saw its infection cases spike in some states after lifting its movement restrictions, which left the restrictions to be reinstated. The rapid rise in hospitalisation cases also caused shortage concerns as some hospitals were seeing more than 97% of its ICU beds being utilised.
- IMF reported that the global economy is expected to shrink by 4.9% this year– a lower revision on the 3.0% decline forecast that it made in April. The lower revision was attributed to the effects of the pandemic, as citizens continue to take precautionary measures despite the reopening of businesses.
- The traditional banking stocks took a hit at the end of the week after the Feds expressed plans to restrict the banks from making dividend payouts, and share buybacks. This left the MSCI World Finance Index tumbling 3.6% lower in local currency terms as prices of major banking stocks fell.
- After weeks of positive gains, the tech-sector took a hit last week, sliding 3.5% lower in MYR terms. Tech giant, Facebook Inc, saw its share price take a nose dive after major advertisers such as Unilever, and Starbucks decided to move away from advertising on the platform on the back of controversies surrounding Facebook’s inability to effectively police hate speeches. Price of Facebook shares dove 9.5% in local currency terms, while Twitter Inc tumbled 13.1%.
- The 0831EA, which aims to provide a -1x return of the daily performance of tech-focused NYSE FANG+ Index, rose 2.9% in MYR terms last week after major tech stocks slid lower.
- Tensions between the US and China continued to loom over markets. Though there was a sigh of relief after President Trump tweeted that the trade deal was “fully intact”, tensions rose when news that the officials from China had warned of retaliatory actions if the US continued to meddle in its affairs on Hong Kong, and Taiwan.
- China’s broader equity indices rose last week, staying ahead of its peers. Sentiment was elevated after the government announced that it would look to allow foreign investments to flow into more sectors within the economy.
- The on-shore CSI300 index rose 1.2% last week while the Shanghai Composite, and the broader MSCI China climbed marginally higher. The consumption-focused S&P New China Sectors Ex A Share Index remained at the top of the table for the year, with a 14.4% gain in MYR terms, whilst the CSI300 and Shanghai Composite Index saw it YTD gains climb to 4.0% and 0.5% respective.
- Tensions also intensified between the US and Europe after the US threatened to impose tariffs worth USD3.1 billion on products coming out of the EU, and UK.
- After weeks of climbing higher, oil price slid 3.1% lower in MYR terms to end the week at the USD38 per barrel range. Concerns surrounding rising inventories, and weaker global growth prospects put pressure on oil price.
- Amidst the uncertainties, Gold price moved 2.1% higher last week as investors shied away from risk assets. The 0828EA crept back into the limelight and climbed higher to bring its YTD gains to 20.1% in MYR terms.
- It has been an upward trajectory for Gold price since the major sell-off in all asset classes in March. Demand for the precious metal has remained well supported on the back of the uncertainties that have continued to loom over global markets. Analysts expect the trend to continue as investors seek refuge in safer haven assets amidst the lack of clarity.
In other economic news
- US data surprises on the upside?
- Service sector PMI jumped to a 4-month high of 46.7 in June, from the 37.5 reading in May.
- Similarly, the manufacturing sector activity also rose to a 4-month high from 39.8 in May to 49.6 in June.
- Jobless claims remained high at 1.48 million last week, which was more than the 1.35 million estimated by analysts.
- Economic data out of Europe shines a light of promise
- PMI data for the Eurozone jumps in June to 47.5, from 31.9 in May.
- The reopening of businesses within the continent generated a post-lockdown rebound as retail spending, and dining restarted.
- The PBoC look at alternative ways to increase liquidity without moving interest rates
- The PBoC kept interest rates unchanged as investors await more easing measures from the central bank.
- It has been reported that the government has urged banks to assist smaller businesses by lowering lending rates, deferring loan repayments, as well as cutting fees – a move that is said to possible impact the banks’ books by more than USD200 billion.
- Housing sales have increased despite the rise in unemployment, with Tier 2 home sales rising by 10% YoY.
ETF strategies at TradePlus
- To Hedge:
- 0828EA – a Gold-backed ETF widely used as a storage of value in times of market uncertainty.
- 0833EA – a HSCEI Inverse strategy that helps hedge your portfolio against weakness from the performance of China companies listed on the HKex.
- 0831EA – the NYSE FANG+ Inverse strategy that hedges against the performance of tech stocks listed in the US.
- To Add Position:
- 0829EA / 0829EB – a strategy that gives investors exposure into the consumer focused sector through China companies listed in HK, and the US.
- 0832EA – a 2X leveraged strategy on the HSCEI that captures 2 times the performance of China companies listed on the HKex.
- 0830EA – a 2X leveraged strategy on the NYSE FANG+ that captures 2 times the performance of US listed tech stocks.
A look at the performance of the TradePlus ETFs, and major global indices
Learn more about TradePlus ETFs
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