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Bulls expected to gain in Asia

by Jonathan Adams
equity market

Stronger U.S. equity-market performance on Friday will likely keep bulls in the driving seat during Monday’s Asian trading hours, according to investors

The stronger U.S. equity-market performance on Friday, underpinned by optimism that an effective treatment for the virus might be closer, will likely keep bulls in the driving seat during Monday’s Asian trading hours, according to investors.

Set against that are any number of potential pitfalls. Authorities in China, scheduled to report growth data on Thursday after the economy’s 6.8% first-quarter contraction, warned last week about the dangers of a stock-market bubble following the Shanghai-Shenzen CSI 300 Index’s near 35% rally since mid-March.

Earnings season is about to start, with banks such as JPMorgan Chase & Co. and Wells Fargo & Co. among the first to report. And the virus itself shows no sign of abating, as confirmed cases topped 12.7 million on the weekend.

The Covid-19 pandemic continues to dominate the outlook, Michael Grady, head of investment strategy and chief economist at Aviva Investors in London, said in a report. Downside risks include further outbreaks, higher saving and changed behaviour until a vaccine is found.

Aviva is staying “modestly underweight global equities because of stretched valuations and elevated risks to the economic outlook” but overweight in credit “based on relatively more attractive valuation metrics, as well as being supported by central bank purchases,” he said.

Europe remains a bright spot ahead of Thursday’s European Central Bank decision and a meeting of EU leaders starting Friday to agree on a regional recovery fund. The growth in virus cases across the eurozone remains relatively low.

Approval of the recovery fund will act as a “positive catalyst for European equities,” according to Graham Secker, chief European equity strategist at Morgan Stanley in London.

Stocks in Europe and the U.S. rallied on Friday after earlier declines in China and other Asian markets. The Euro Stoxx 50 Index and the S&P 500 Index both advanced more than 1%, U.S. 10-year Treasury yields rose 3 basis points and the Bloomberg Dollar Index slipped 0.1%.

Middle East stock markets continued in the same vein on Sunday, taking their cue from Brent oil’s 2.1% gain on Friday. Bahrain’s main index climbed more than 2%, Israel’s added 1.2% and Abu Dhabi’s rose 0.5%.

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