Stars Align for Stock Rally in Asia Chasing Wall Street Higher

(Bloomberg) -- Animal spirits abounded in Asian stocks on Monday as investors, emboldened by a lack of details in U.S. President Donald Trump's speech on Friday and a resilient Wall Street, chose to look past weak economic data to focus on bargains.

Shares advanced in all major regional markets, pushing the MSCI Asia Pacific Index above the average level of the past 100 days for the first time since coronavirus rattled global investors. News of easing lockdowns across the region is fueling a rally in the most beaten down shares, such as those in the hospitality sector. Hong Kong stocks saw the best gains in two months.

India is allowing malls and restaurants to open from June 8 as the country attempts to revive business activities ravaged by the world's largest lockdown. South Korea's government unveiled a $62 billion ‘New Deal' spending plan to reshape the economy. Regional measures aside, the stability of the U.S. market is also considered a key confidence booster for Asia stock buyers.

Prospects of a robust economic recovery in China, stable U.S.-China tensions, rising memory-chip and commodities prices, and a weak U.S. dollar are all favoring Asia equities, said Khiem Do, head of greater China investments at Barings in Hong Kong. “It just happens that all these stars were aligned over the last few days, a trend which is likely to continue in June.”

The Citi Economic Surprise Index for Asia Pacific climbed four straight days through May 29, rising to highest since end-February. Investors were able to see the bright side of the news events.

South Korea just posted another double-digit decline in overall export in May, but a 7.1% increase in chip exports was enough to push the Kospi to its best gain in a week.
Tensions between China and the U.S. are boiling over, but investors are cheering a better-than-expected PMI reading in China.

The U.S. market has been a mark of resilience for market sentiment in the face of the era of Covid-19, said Jingyi Pan, a market strategist at IG Asia Pte. The combination of reopening news and no strong suggestions of a second wave thus far has encouraged investors to inch back toward riskier assets, Pan said.

“With the momentum seen in the U.S. market, this had likewise powered the expectation across Asia that demand could likewise recover into the summer months,” she added.

Qontigo GmbH's Asia-Pacific head of applied research Olivier d'Assier believes the strong market performance in Asia is because of stimulus packages.

The big U.S. stimulus via interest rates and the dollar affects many countries, he said. “Essentially, these stimulus packages have taken bearish sentiment out of the picture by underwriting speculative behavior and guaranteeing risk assets,” he added.

READ: Dollar Drops as Trump's China Response Fuels Relief: Inside G-10

Bryan Goh, chief investment officer of Tsao Family Office in Singapore, isn't as optimistic about the economic recovery.

“The markets are looking beyond 2020 to 2021 and even further for a recovery from recession and pandemic,” he said. “We have faith in the eventuality of a cure and vaccine but less faith that the economy will recover to the level implied by equity and credit valuations.”

Investors should also be cautious about “herd-like behavior” in the market, especially when there's a disconnect between the economic reality and financial asset prices, according to Jeffrey Halley, a senior market analyst at Oanda Asia Pacific Pte in Singapore.

“Macro funds act more like five-minute macros, and not five-month or five-year macros in my time,” he said.