Date: 28th May 2020
Author: Stanley White, Koh Gui Qing
On Thursday, Asian shares and U.S. stock futures climbed, with an increasing positivity on global economic recovery with the coronavirus pandemic surpassing urgent concerns on a standoff between US and China over Hong Kong.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 0.6%. Stocks in China .CSI300 rose 0.44%, but shares in Hong Kong .HSI fell 0.23%.
Australian shares rose 2.22% to the firmest in more than two months, while Japan's Nikkei stock index .N225 rose 2.01% to the highest since late February as investors welcomed with enthusiasm the re-opening of economic activity in both countries.
U.S. stock futures, S&P 500 e-minis, rose 0.36% on Thursday in Asia, following a positive session on Wall Street overnight, bringing to light an optimistic outlook.
However, a huge danger to equities is the Sino-U.S. relationship that is most likely to deteriorate after U.S. Secretary of State Mike Pompeo reported that Hong Kong is no longer entitled for special treatment under U.S. law.
Yukio Ishizuki, FX strategist from Tokyo said, “The overall tone is in support of risk-on trades, and we can see less short-selling and more willingness to test the upside in equities.” “There remains a fair amount of concern about Hong Kong, but for now markets look like they will remain calm.”
For the first time in about 12 weeks, bolstered by bank stocks, the S&P 500 closed above 3,000, as investors hoped that the world economy recovers as it re-opens. The S&P 500 has leapt about 36% as the pandemic dragged it to the year’s low on March 23.
Also, concerns have been raised that the rally, if overdone, could be susceptible to a protracted pullback. The plunge in Hong Kong stocks highlights some investors’ concerns on the strength of the recent rally in global equities.
China undermining Hong Kong’s autonomy such that the territory no longer warrants special treatment, is possibly a great blow to the city’s reputation as a financial hub, said Pompeo.
A few investors worry a punitive U.S. response to China on issues of Hong Kong could possibly warrant a tit-for-tat reaction from Beijing, further straining ties between the world’s two largest economies and continuing to falter global growth.
Sources claim, the U.S. government might suspend Hong Kong’s preferential tariff rates for exports to the United States. A far less severe response comparing with formally revoking Hong Kong’s special status under U.S. law.
President Donald Trump will be making an announcement in response to China’s policies towards Hong Kong later this week.
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