Global equity markets took a dive over the Chinese New Year holidays after news of an outbreak of the coronavirus left markets in limbo. The virus, first detected in the Wuhan City of China, led to a complete lock-down of the city as China’s government rushed to contain the spread of the virus. The move disrupted the world’s largest human migration, as the Chinese New Year typically sees 3 billion trips being made as families reunite to celebrate the festive holidays. After being closed for the festive holidays and an extended break from the coronavirus, the China equity market is set to open for trading this week.

 

In the news

  • The death toll from the coronavirus in China exceeded 300, with infections being seen spreading amidst more countries putting in place travel bans as fears intensified.
  • The World Health Organization (WHO) declared the coronavirus a global health emergency – but specified that it would not be interfering with global travels, and trade.
  • US stocks suffered declines on concerns that the outbreak would dampen economic growth. This occurred amidst a busy week of corporate earnings where companies were releasing better than expected corporate profits.
  • A standout winner was Apple Inc, which saw its stock price hit a record high amidst the uncertainty after announcing strong earning results. It’s quarterly revenue rose 9% from the previous year to USD 91.8 billion.
  • However, fears of the coronavirus overshadowed earnings results, putting price pressures on stocks despite their earning results. Other strong earners included
    • Amazon, Inc - whose revenue grew by 21% YoY to US 87.4 billion), and
    • Facebook, Inc – whose growth beat estimates but was slower than its previous years.
  • 0831EA (TradePlus NYSE FANG+ Daily (-1x) Leveraged Tracker) provided a hedge from the market tumble, gaining 0.8% last week amidst the market volatility, while the NYSE FANG+ Index rose 0.5% over the same period.
  • Brexit finally took place on the 31st of January, when the UK left the EU more than 3 years after voting on the referendum.  This left the UK prepping itself for more negotiations for its future trade ties with the EU. 
  • The uncertainties that have hovered over markets have driven gold prices higher, pushing the 0828EA (TradePlus Shariah Gold Tracker) 2.2% higher last week, alongside LBMA Gold price which rose 2.0% over the same period. 

 

In other economic news

  • US Feds kept its interest rates unchanged, as it continued to work towards achieving its 2% inflation target.
    • GDP for 4Q2019 was recorded at a 2.1%, bringing the US’ full year growth to 2.3%, down from the 2.9% seen in 2018.
    • Consumer spending slowed in 4Q to 1.8%, a relatively large slowdown from the 4.6% in 2Q, and 3.2% in 3Q.
  • The EU saw unexpectedly weaker growth, with the bloc recording a mere 0.1% growth in 4Q.  Weakness was attributed to widespread strikes that were seen taking place in France, political confusion in Italy, as well as the overall weakness in trades on the global front.  The broader European Index slid 1.9% lower in MYR terms last week.
  • Over in China, economic data was mixed.
    • The manufacturing sector posted a PMI reading of 50.0, slowing marginally from the 50.2 reading in December – signalling a stagnation.
    • Non-manufacturing index was however seen to be improving with a reading of 54.1, beating the estimated 53.0, and the previous month’s reading of 53.5.

 

What to look out for ahead?

  • The China equity market opens this week after taking a break in conjunction with the Chinese New Year and an extended close following the virus outbreak. Market is expected to open softer this week following the declines seen across global financial markets. 
  • China has vowed to provide financial support for its financial system in excess of CNY 170 billion to cushion the impact of the virus outbreak on the economy.  
  • Would this government support provide an opportunity for investors to take advantage of the sell-off and move back into the market through the 0832EA (TradePlus HSCEI Daily (2x) Leveraged Tracker), or is it time to hedge exposure through the 0833EA (TradePlus HSCEI Daily (-1x) Inverse Tracker)?
  • US corporate earnings will continue on this week – and we will be watching out for earnings from Google’s parent Alphabet to see if the NYSE FANG+ Index will continue to climb higher in a sea of red performers, which it had done last week.
  • The US is also expected to release its ISM manufacturing PMI numbers, as well as its non-farm payroll data this week.
  • But all these will probably be overshadowed by the coronavirus, as markets continue to watch the latest development and its potential impact on global financial markets.
  • Are we expecting more pressures for the equity market and time to hedge your portfolios, or is it time to increase your market exposure after the sell-off? 

 

A look at the performance of the TradePlus ETFs, and major global indices

Source: Affin Hwang AM as at 31 Jan 2020. Prices and returns are quoted in MYR terms, and reflects the closing NAV of the ETF.

 

Source: Bloomberg as at 31 Jan 2020. Returns are quoted in MYR terms.

 

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