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Asia stocks rise as Chinese factory activity picks up

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Via Financial Times

Asian stocks rose on signs that Chinese economic activity is starting to recover following the coronavirus outbreak, fuelling hopes of a similar rebound elsewhere once the crisis eases. 

But analysts warned there could be more pain ahead for the world’s second-biggest economy with equities around the world set for their worst quarterly performance since the global financial crisis as a result of the pandemic.

“There is little doubt that strong headwinds are ahead with the virus spreading on a global level,” said Hao Zhou, an economist at Commerzbank.

China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks was up 0.5 per cent on Tuesday while Hong Kong’s Hang Seng rose 1.1 per cent.

Official data showed Chinese manufacturing activity returned to growth in March, as businesses slowly started resuming operations after the outbreak earlier shut down swaths of the economy.

The National Bureau of Statistics’ purchasing managers’ index reading of 52 for the month marked a sharp jump from a record low of under 36 in February. Any reading above 50 indicates growth.

Investors have kept a close eye on China’s recent PMI readings for signs of how the world’s second-biggest economy is recovering with the government appearing to have successfully contain the coronavirus outbreak. Beijing has also launched large-scale stimulus measures in a bid to cushion the economy. 

“Sentiment has recovered substantially after the stimulus and slowing contagion pace,” said Ken Cheung, chief Asia currency strategist at Mizuho Bank, who said the figures could be “an encouraging sign of China’s recovery ahead”.

But analysts warned that the rebound may be fleeting. “This does not mean that output is now back to its pre-virus trend,” said Julian Evans-Pritchard, senior China economist at Capital Economics. “It simply suggests that economic activity improved modestly relative to February’s dismal showing.” 

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Elsewhere in Asia, Japan’s benchmark Topix slipped 0.8 per cent, weighed on by concerns the world’s third-biggest economy faces a so-called second wave of coronavirus infections.

Overnight in the US, the S&P 500 closed 3.4 per cent higher with analysts citing huge monetary and fiscal stimulus measures from the government for boosting sentiment. Futures tipped the S&P 500 to climb 0.5 per cent when trading begins on Wall Street later in the day.

Oil prices rose after a tumultuous start to the week in which West Texas Intermediate, the US marker, dropped below $20 a barrel. WTI was up 5.7 per cent at $21.24 a barrel on Tuesday while international benchmark Brent crude gained 1.5 per cent to $23.10.

Sovereign bond yields fell, with the 10-year US Treasury yield retreating 0.03 percentage point to 0.700 per cent. Yields fall as prices rise.

The coronavirus, which has shut down economies across the world and curtailed the movement of billions of people, has prompted a brutal sell-off in equities over the past six weeks. The MSCI All World index has declined more than 20 per cent year to date, its worst fall since the final quarter of 2008.

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