"Revolution of our times"

Five Things - Asia

Riot police flood the streets of Hong Kong after Carrie Lam's National Day address. Investors turn to Asian high-yield bonds and tech stocks. And the Chinese yuan attracts global appeal after its best quarter in 12 years. Here are some of the things people in markets are talking about today.

'Stability Restored'

Hours after Hong Kong leader Carrie Lam declared that stability had returned to the city, police in riot gear flooded the streets Thursday, checking IDs and backpacks and confronting passers-by in an effort to quash any protest activity on the National Day holiday. With about 70 arrests and few crowds, the day was a marked departure from the mass demonstrations that paralyzed the Asian financial hub a year ago. Some 6,000 police were on standby Thursday, and small protests actions flared up periodically, with demonstrators chanting briefly, "Liberate Hong Kong, revolution of our times" — a popular slogan that's been banned by the government for months. Support for several of the protest movement's goals increased this summer, according to a poll released in August. Just over half of respondents said they "very much oppose" the national security law, and the share in favor of Lam's resignation rose to 58%.

Markets On Hold

Investors are expecting trading on the Tokyo Stock Exchange to resume after Thursday's outage. Japanese equity futures dipped along with those in Australia, while markets in China and Hong Kong remain shut for a holiday. Earlier, U.S. shares rose as traders weighed the chances of a deal for a U.S. fiscal-stimulus package. The Nasdaq 100 reached the highest in almost a month as Amazon.com, Microsoft and Tesla rose. The S&P 500 Index's advance was limited by declines in energy producers. Oil tumbled on concern the market may be oversupplied. Gold advanced, while Treasury yields dipped.

Incoming Picks

Investors are turning to Asia's high-yield bonds and technology stocks in the search for higher levels of income. Select Asian high-yield credit is attractive, such as Chinese real-estate debt from solid businesses with good access to funding, according to Pictet Asset Management. Meanwhile, Taiwanese technology stocks are favored by JPMorgan Asset Management and Principal Global Investors. Income hunters are looking beyond safer debt and traditional dividend-paying equities that have been hurt by the pandemic. Almost $16 trillion of bonds globally offer negative yields after central banks drove down interest rates to fight the economic damage from the pandemic. Credit spreads have compressed around the world, including in Asia, but the region's investment-grade dollar bonds pay premiums that are about 40 basis points higher than similarly rated U.S. notes, while high yielders command more than 200 basis points, according to Bloomberg Barclays indexes.

Best Yuan Yet

The Chinese yuan's best quarter in 12 years is drawing renewed international attention to the currency. The onshore renminbi gained 3.8% in the three-month period ending Sept. 30, the most since early 2008, while its offshore counterpart advanced more than 4%. That's more than G-10 currencies including traditional havens like the Swiss franc and Japanese yen. China's success in fighting the coronavirus and its economic fallout has attracted both praise and investment, and prompted some speculation that the yuan could eventually become a new sanctuary for the risk-averse. Of course, the nation still tightly controls its exchange rate versus a basket of currencies, and determines how much money is able to cross its borders — taboo for many international asset managers — but those measures have also stabilized the currency even as price swings pick up elsewhere.

Healthy Competition

The largest stock on Australia's benchmark index is facing increased price pressure as it deals with rising competition in the global health care sector. Biotechnology firm CSL, which makes therapies from human blood, became the highest-weighted stock on the S&P/ASX 200 Index this year. However, the company's valuation could be challenged by a slew of international players bringing competing products to market, according to analysts. "CSL's future faces a much wider range of potential outcomes and in investing, when there is more uncertainty, this typically leads to a lower multiple for the stock," Morgan Stanley wrote in a Sept. 29 note, adding that 45% of the firm's revenues may be threatened by therapies from peers like Roche, Sanofi and Takeda.

What We've Been Reading

This is what's caught our eye over the past 24 hours:

And finally, here's what Adam's interested in this morning

September was a rocky month for investors — stocks and the dollar saw a reversal of trends that had largely been intact for the prior five months. This change of behaviour from market participants has brought with it new opportunities: A recent Bank of America survey showed that bullishness on equities is now back to levels last seen before the pandemic struck. When the firm's indicator has been around these levels, returns over the next 12 months have been positive some 94% of the time, with average returns of 20%. 

The next big test for sentiment comes from Friday's U.S. jobs report, the last one before November's election. It's projected to show a sharp deceleration in labor market gains. 

Any evidence to the contrary may give fresh impetus to dollar traders who remain fixated on the battle to iron out a new stimulus plan. Equity investors will also closely watch the data release on Friday for any clues on what kind of strength the economy is showing heading into the crucial election. 

Adam Haigh is an editor covering global markets for Bloomberg News in Sydney.


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