A health worker takes a swab sample from a woman at the entrance of a residential area under COVID-19 lockdown in the Xuhui district of Shanghai. (Photo: AFP/Hector Retamal)
HONG KONG: Most Asian markets reversed early losses on Tuesday (Jun 28) and oil continued its recent rally after China slashed the quarantine time for visitors, fuelling hope for a boost to the embattled economy.
The news came as Beijing and Shanghai appeared to have contained a COVID-19 outbreak that had forced officials to impose lockdowns which compounded global supply chain snarls.
Authorities said inbound travellers would now only have to quarantine for 10 days, instead of the three weeks that had been in place during the pandemic.
The news provided a much-needed boost to shares, which had mostly been down on renewed concerns about central bank interest rate hikes and soaring inflation.
On Monday the central People’s Bank of China pledged to provide support to the world’s number two economy.
The gains extended a rally enjoyed last week on bets that a possible recession next year could allow finance chiefs to ease up on their monetary tightening campaign.
“This relaxation sends the signal that the economy comes first,” Li Changmin, at Snowball Wealth, said. “It is a sign of the importance of the economy at this point.”
After spending the morning in the red, Hong Kong, Shanghai, Tokyo, Seoul and Wellington turned higher, while there were also gains in Sydney, Manila and Bangkok. Mumbai, Taipei and Jakarta slipped while Singapore was flat.
London, Paris and Frankfurt were all up as traders digest comments from European Central Bank boss Christine Lagarde, who said it would go “as far as necessary” to bring inflation back down to its two percent goal.
However, Huang Yanzhong of the New York-based Council on Foreign Relations warned: “It’s not surprising that China has managed to return to so-called zero, after all the huge effort it’s made.
“But that doesn’t mean it can claim a thorough and durable victory because it didn’t eradicate the virus,” he said. “Unless they thoroughly fence off Beijing and Shanghai, the virus could sneak in anytime.”
INFLATION FEARS
Still, while the inflation and rate situation remains a worry, compounded by the war in Ukraine, some commentators remain relatively upbeat as the second half of the year approaches.
Market strategist Louis Navellier said in a note: “While it’s sobering that the first half of the year is the worst since 1970, history also says that when the first half of the year is down at least 15 per cent the second half of the year is up every single time with an average return of 24 per cent.”
And Ben Laidler, a global markets strategist at eToro, added that a lot of the expected economic weakness had been largely factored in by dealers.
“Much is already discounted by markets, which may be in ‘bad news is good news’ mode, as a slowdown cools inflation and interest rate fears,” he said.
“A ‘less bad’ gradual easing of inflation risks is possible, as is a slowdown – not recession – driving a ‘U-shaped’ rebound. The focus for investors is on cheap and defensive assets while managing rising risks.”
Oil prices surged more than one percent to build on a rally that has seen Brent and WTI pile on more than 8 per cent since Wednesday. Both main contracts had fallen heavily earlier in the month on recession worries.
The gains have come on the back of a pick-up in demand from China, while supply fears have been raised by political crises in producers Libya and Ecuador.
“The rhetoric around declaring victory in Shanghai over Omicron seems to be prompting Asian traders to continue buying,” said OANDA’s Jeffrey Halley.
Meanwhile, Moody’s ratings agency confirmed Russia had defaulted on foreign debt for the first time in a century after bondholders did not receive US$100 million in interest payments.
The missed payments follow a series of Western sanctions that have increasingly isolated Moscow following its invasion of Ukraine.
Russia lost the last avenue to service its foreign-currency loans after the United States removed an exemption last month that allowed US investors to receive Moscow’s payments.