Global 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 that there could be more pain ahead for the world’s second-biggest economy with the effects of the pandemic setting equities on course for their worst quarterly performance since the global financial crisis.
“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 0.9 per cent. In Europe, the composite Stoxx 600 and London’s FTSE 100 rose more than 1.5 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 contained the coronavirus outbreak. Beijing has launched large-scale stimulus measures in an attempt to cushion the impact on 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.”
Elsewhere in Asia, Japan’s benchmark Topix slipped 1.6 per cent amid concerns that the world’s third-biggest economy faces a 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 open about 0.7 per cent higher.
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 6 per cent at $21.29 a barrel on Tuesday while international benchmark Brent crude gained 1.1 per cent to $23.02.
Sovereign bond yields fell, with the 10-year US Treasury yield retreating 0.04 percentage point to 0.682 per cent. Yields fall as prices rise.
The coronavirus, which has shut down economies worldwide 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 — while the FTSE 100 has shed a quarter of its value in the heaviest drop since 1987.
