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Asian markets rally after Federal Reserve launches unlimited bond buying to shore up coronavirus-battered US economy

Deb Price, Gigi Choy and Louise Moon

Asia-Pacific stocks rallied on Tuesday after the US Federal Reserve launched unlimited bond buying and took other steps while the US Congress appeared closer to a deal on a massive stimulus package to boost the world's largest economy hammered by the coronavirus.

After Monday's negative start to the week, Asia stocks rose in the face of the latest death toll due to the spreading respiratory illness: more than 16,000 people have died around the globe, with the highest single tally in Italy, with more than 6,000 dead. Meanwhile, Hong Kong was among governments including the UK tightening rules to try to prevent transmission of the disease. More than 1.5 billion people worldwide are on some type of lockdown.

The world's central banks and governments are throwing the kitchen sink at the virus, with an array of fiscal and monetary policy steps. But volatile stock exchanges from Hong Kong to New York have tanked in recent weeks, falling into bear markets. Among major stock exchanges, only China isn't in a bear market.

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The Hang Seng Index finished with a 4.5 per cent gain at 22,663.49.

The high-turnover Tencent rose 4.9 per cent, while Alibaba Group Holding, the e-commerce giant that is the parent company of the South China Morning Post, advanced 2.6 per cent. SoftBank Group plans to sell US$14 billion in shares of Alibaba as it moves to raise US$41 billion to bolster its businesses hit by the pandemic, Bloomberg reported, citing people with knowledge of the matter.

The Shanghai Composite finished with a 2.3 per cent gain. (For in-depth coverage of Hong Kong and mainland markets, see the our live stocks coverage.)

"Investors in Asia are focusing on the latest QE [quantitative easing by the US Fed] move. They believe Asia stocks will benefit from improving liquidity," said Kenny Wen, wealth management strategist at Everbright Sun Hung Kai.

He said traders were bottom fishing virus-battered stocks, leading to the big gains seen throughout the Asia-Pacific region.

"I think today's rally in Asia is short-lived," Wen added.

Seoul's Kospi closed up 8.6 per cent, and the tech-heavy Kosdaq jumped 8.3 per cent.

South Korean President Moon Jae-in said his government will double a planned market rescue package to help contain the economic and financial fallout from the coronavirus outbreak. The package will now be 100 trillion won (US$80 billion).

Tokyo's Nikkei 225 closed with a 7.1 per cent gain.

Japan's services sector shrank at the fastest pace on record in March and its factory activity at its quickest in about a decade, according to a new business survey in the country reported on by Reuters. The world's third-largest economy is under increasing pressuring to postpone the Olympic Games, with Canada and Australia saying they will not send their athletes due to dangers posed by the virus.

Australia's S&P/ASX200 closed up by 4.2 per cent. It plummeted 5.6 per cent on Monday. New Zealand's S&P/NZX50 shot up 7.2 per cent at the close, after its 7.6 per cent decline at the start of the week.

Meanwhile, Singapore's Straits Times Index rose 6.2 per cent after plunging 7.3 per cent on Monday.

Flinders Street station in Melbourne is quiet on Monday as the Australian government said it will enforce more stringent controls to slow the spread of the virus after the number of infections surged. Photo: Bloomberg alt=Flinders Street station in Melbourne is quiet on Monday as the Australian government said it will enforce more stringent controls to slow the spread of the virus after the number of infections surged. Photo: Bloomberg

"The basic tenets of how a government influences the economic decision-making process in a capitalist society have been discarded as Asian investors awake to the most significant monetary experiment in the history of financial markets," Stephen Innes, chief global markets strategist at AxiCorp, wrote in a note on Tuesday morning.

"The Fed unleashed its all-in howitzer to fund an array of programmes, including Fed backing for purchases of corporate bonds and direct loans to companies and promises that it will soon roll out a plan to get credit to small and medium-sized businesses. This deluge is as much liquidity support as markets could wish for as the Fed plans to add a $625 billion balance sheet this week," he said.

US Senator Charles Schumer is the top Democrat in the US Senate controlled by Republicans. Democrats and Republicans have been at odds over an anti-virus package that has been valued between US$1.8 trillion to US$2.5 trillion. Photo: Agence France-Presse alt=US Senator Charles Schumer is the top Democrat in the US Senate controlled by Republicans. Democrats and Republicans have been at odds over an anti-virus package that has been valued between US$1.8 trillion to US$2.5 trillion. Photo: Agence France-Presse

Congressional Democrats and Republicans have been at odds over an anti-virus package that has been valued between US$1.8 trillion and US$2.5 trillion.

The top Democrat in the US Senate controlled by Republicans, Charles Schumer, and Steven Mnuchin, the Treasury secretary who is involved in negotiations, said lawmakers are close to a deal.

"The Fed has thrown another lifeline to markets and the economy as the Covid-related disruption continues to ripple through the system," Anna Stupnytska, global head of macro and investment strategy at investment management services company Fidelity International, wrote in a new note.

"As its earlier interventions failed to abate severe stresses that have emerged in both US treasury and mortgage-backed security [MBS] markets, the Fed has now pulled out the ultimate card " QE infinity " committing to unlimited purchases of government bonds and MBS," wrote Stupnytska in a morning note.

She said the Fed action needs to be "matched by much bigger and timely packages on the fiscal side, which in turn have to be effective in helping the economy in this downturn but also " importantly " in the recovery."

Stupnytska doesn't expect a V-shaped recovery in the second half of the year.

Finance ministers from the Group of Seven industrialised economies will hold a teleconference soon to discuss their response to the coronavirus outbreak, reported Kyodo news service, citing sources close to the matter.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.