The market recovery is underway in Asia, even as the coronavirus outbreak continues to escalate.
Japan’s Nikkei 225 advanced 2.4% on Thursday, South Korea’s KOSPI rose 2.9%, Hong Kong’s Hang Seng Index rose 2.6% and China’s Shanghai Composite Index advanced 1.7% — all of them building on Wednesday’s gains.
The advances come as the coronavirus outbreak shows little sign of slowing down. The disease has killed more than 560 people worldwide, mostly in China, and infected more than 28,000 people in over 25 countries.
The rising toll has some analysts questioning investors’ optimism.
There is very little “to back up the claim that either [the coronavirus] is peaking, or that it is contained,” Robert Carnell, an economist with ING, wrote in a note Thursday.
Given the rise in confirmed cases, “I can see little justification for the extent of the market’s rally if it is entirely a relief move over the outbreak,” he added.
But Lukman Otunuga, an analyst with FXTM, said there were “multiple factors” driving the change in investors’ mood, including “the expectation that central banks and governments are ready to ease monetary and fiscal policies” to shore up markets.
The People’s Bank of China has already pumped billions of dollars into the financial system, Otunuga wrote in a note Thursday. He added that Thailand’s central bank was the first to cut interest rates this week in response to the outbreak.
To prevent a market crash, China could also deploy its “national teams” — a nickname given to the investment managers that can be deployed to buy up stocks when necessary to keep the markets steady.
Separately on Thursday, China announced that it will halve additional tariffs on $75 billion worth of US imports, as the world’s two largest economies continue to step back from a years-long trade war that has hurt both countries and dented global growth.
The tariff rollbacks had been widely expected and were a gesture in response to the United States halving its September round of tariffs in the “phase one” trade deal, according Tommy Wu, an economist with Oxford Economics.
“Nevertheless, the announcement may help boost market sentiment, especially at a time when China is battling with the economic impact of the coronavirus outbreak,” he said.
Thursday’s market rally comes as a growing number of companies are warning that the spread of coronavirus will drag down earnings for the year.
Yum China, which owns restaurant chains such as KFC and Pizza Hut in China, said on Thursday that 2020 sales and profit will take a hit, as the coronavirus outbreak has forced it to temporarily shut more than 30% of its stores in mainland China.
Nike, Adidas and Capri Holdings — which owns Versace, Jimmy Choo and Michael Kors — also this week warned investors that sales could take a hit as the virus spreads across China.
“Huge uncertainties remain over the impact of the coronavirus on China’s economy,” Fitch Ratings warned on Thursday, noting that the disease has spread faster than SARS, “and official travel and workplace activity restrictions have been more aggressive.”
— Laura He contributed to this report.