Market Overview

6 July 2020

Chinese Bulls Horn the Rise of the World

Today's refreshing morning round of the global shares rally shows again that the majority of the investment community is still ready to bet on a strong world economic recovery. Chinese stock indexes are showing evidence  that many people are betting on China's revival as being a very important driver of the whole process. 

China was the first well-known state with the outbreak of the COVID-19, but it has managed to drastically contain it before the rest of the world was contaminated. Last Friday the Chinese Caixin services Purchasing Managers Index (PMI) recorded a new 58.4 historical maximum. This is more confirmation that China is not only controlling the situation but is going far beyond it.

Chinese stock markets have been growing fast since the first days of July. In early hours on Monday, the Shanghai Composite stock index (SSEC) soared immediately by 5.7% compared with its Friday's closing. In total, it has added more than 12% since the beginning of the previous week. Thus, SSEC just passed its peak values of 2019, when another significant Chinese continental stock index A50 reached its new absolute highs, where it has never been before. A50 is the index calculated by the FTSE Group in which the components are chosen and combined together from Shanghai and Shenzhen Stock Exchanges, excluding some shares for foreigners.

The American high-tech Nasdaq index futures also went once again to the new historical peak of all time on this Asian wave, as European stock indexes and the U.S. broad market S&P500 index started today sharply above last week's readings, but still below June’s highs. However, the direction set by the Chinese and tech assets is likely to remain in force globally. Even Japan’s Nikkei index, which has lagged with a rather soft domestic economy, managed a rise by 1.8%. MSCI’s All-Country World Index, which tracks shares across 49 countries, rose 0.7% to its highest value since June 6 after the start of European trading. In Europe, stocks exposed to China, like carmakers, industrials or energy companies and luxury goods producers performed the most.

Surging coronavirus cases may delay the re-opening of businesses across the United States, but the number of newly detected daily infection carriers dropped during the Independency weekend celebrations and was below 45,000 according to Sunday statistics. U.S. President Donald Trump declared just a couple of days before that three vaccine candidates for Covid-19 are "looking really, really good" in trials, so he added that the United States and the world will get the vaccine soon, before the end of the year. Speaking at the Senate hearing on July 2, the U.S. National Institutes of Health Director Dr. Francis Collins also said that he was optimistic about Trump administration’s vaccine-acceleration program “Operation Warp Speed”, which may generate a safe and effective vaccine for COVID-19 by year-end and may meet a target of making 300 million doses by early 2021.

Perhaps, this is why investors are focusing now not on the path that has yet to be taken, but on fresh data that has confirmed a rapid job recovery with 4.8 million jobs in the U.S. in June, of which almost 4.77 million jobs are in the private sector. The U.K. Construction PMI for June which was at 55.8 together with EU Retail Sales that went up by 17.8% for May versus April and -5.1% in year-on-year basis versus -7.5% - which is widely expected -are playing for the same "team".

China Securities Journal in its editorial on Monday said that China needed a bull market to help fund its rapidly developing digital economy. “We advise against regarding uncertainty as a reason for exiting markets. Instead, we see ways for investors to cope with uncertainty - including averaging into markets - or even take advantage of volatility,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

Chief global equity strategist Sean Darby at Jefferies in Hong Kong told Reuters: “All of the global monetary policy indicators are flashing green right now. It is very loose and that should mean markets which have underperformed should do well... The dollar has also been weaker over the past five days so emerging markets, led by China, normally do well on that back of that.”

The U.S. Non-Manufacturing Business Activity set of data by the Institute of Supply Management (ISM) will be released today together with the Markit's Composite PMI. The various preliminary polls on this data also show very positive expectations of experts.


Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

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