Market Hitches: Rally on a pause, Investors get Cautious; Vaccine potential under Spotlight

  • May 20, 2020 10:05 PM AEST
  • Kunal Sawhney
    CEO Kunal Sawhney
    2781 Posts

    Kunal Sawhney is founder & CEO at Kalkine and is a richly experienced and accomplished financial professional with a wealth of knowledge in the Australian Equities Market. Kunal obtained a Master of Business Administration degree from University of T...

Market Hitches: Rally on a pause, Investors get Cautious; Vaccine potential under Spotlight

Starting from Friday, 15 May 2020 till 19 May 2020, the index S&P/ASX200 had been in the green zone reflecting some positive sentiments thanks to the easing of restrictions and the promising results of Moderna’s vaccine. During yesterday i.e. 19 May’s trading session, the majority of the sectors on ASX closed in green, apart from the consumer staples and health care sectors.

Gold MTF non-AMP

In another development, China finally imposed a hefty tax on Australian barley for next five years due to the global pressure for virus investigation; however, till yesterday the market had turned a deaf ear to the news.

Major concerns surfaced from the US as President, Donald Trump escalated threats against the World Health Organization to permanently pull off funding to WHO while reconsidering membership of the US to the organisation. Lately, a geopolitical war between the US and China has led to a spat on the membership of the US with WHO.

Market Movement During the Day

After three consecutive trading days of positivity in the market, the ASX on 20 May 2020, after an initial struggle of trading in red during the day was yet again witnessed to be ending in green, by the time the market session was over. The benchmark index, S&P/ASX 200, was noted up by 0.24% from its previous close to 5,573. However, a few sector indices were seen struggling to make their way out of the red zone into the green zone.

Till yesterday (19 May), investors looked optimistic on the back of the hope for the development of a COVID-19 vaccine. However, major international events have left the investors to be more cautious in current highly uncertain times.

At the start of the day on 20 May 2020, Australian shares were anticipated to open lower amidst fresh uncertainties surrounding the state of the global economy indicated by the warning issued by the Managing Director of IMF, Kristalina Georgieva, to governments worldwide against allowing the pandemic to transform into widespread protectionism.

With uncertainties mounting in the international economic environment, it looks like the market rally for ASX shall be on a pause as investors turn more cautious. However, the benchmark index that struggled to make it to the green zone in the initial part of the day was noted 0.27% higher than the previous close towards the end of the day (at 03:56 PM AEST), keeping the hopes for a four-day consecutive rally alive for the investors.

Let us take a closer look at the developments that have been influencing the mood of investors leading to a pause in the market rally.

The US, China and WHO Circle

Tensions have been seen escalating among the US and China due to the accusations placed by the US on China of not stopping the spread of the COVID-19 virus and is undertaking serious investigations into China’s handling of the coronavirus outbreak.

Further, the US has been the largest contributor to World Health Organization (WHO) and has been engaged with it in offering both financial and technical support along with taking part in its governance structure. The US President has criticised WHO in a letter for virus response outlining serious concerns with the coronavirus response of WHO.

The US President had also warned the WHO of halting the funding to the U.N. public health agency if it fails to commit to major substantive improvements.

China Slaps tariff on Australia Barley Export

The largest export market to Australia’s barley, China has slapped 80% tariffs on Australian barley exports, and this is something least unwanted by an exporting country in present unprecedented times.

During the previous financial year, China imported 2.5 million tonnes of barley from Australia, which is down from a peak of 5.9 million tonnes in 2016-17 but remains quite significant. The increased tariff shall compel the barley exporters to halt the shipments of barley to China due to the tariff imposed that is likely to drive the price up to prohibitive levels.

But where does the hike in tariff comes from out of nowhere?

Independent investigation into the origins and early handling of the coronavirus outbreak has been a sight of pleasure for China and has attracted strong pushback from China. However, Australia has been a strong advocate for the independent investigation, which translated to be a political move against China.

In response to this, China has initiated anti-dumping and countervailing investigations into barley originating from Australia from 19 November to 21 December 2018.

Warning from the IMF

The Managing Director of IMF warned about the pandemic turning out to be a vehicle for implementing widespread protectionism as this can be a serious threat to the international and globalised business. Moreover, high costs are projected to hit the economy, and it is likely that the income shall take a plunge and poverty shall amplify in countries beyond what we are witnessing today.

Earlier also, IMF had also warned about the effects of the great lockdown on the global economy and the slowdown that has been caused due to the spread of the coronavirus.

Race for the Vaccine

Amidst the race to develop a successful treatment for the coronavirus, the news of positive outcome of an experimental vaccine against the COVID-19 brought much optimism for the market and the world together.

There have been numerous claims made across the globe by several countries regarding the successful testing of a vaccine against the coronavirus. In the latest development, the US-based clinical-stage biotechnology company, Moderna Inc. found favourable interim clinical data of its vaccine candidate- mRNA-1273 against novel coronavirus from the Phase 1 study headed by the NIAID (National Institute of Allergy and Infectious Diseases) which is a part of the NIH (National Institutes of Health ).

The Company is now gearing up for the pivotal phase III study in July and looks forward to filing a biologics license application (BLA) after successful completion of phase 3.

Another claim of stopping the pandemic even without vaccine was put forward by a Chinese Lab that believes the drug to be able to bring the coronavirus pandemic to a halt by not only shortening the recovery time for the infected while offering short-term immunity from the virus.

Bottomline

While developments like these have been a major governing factor behind the current mood of the investors, it is hard to determine the exact mood of the investors. With another good day for the market where most of the indices settled in the green zone, investors look like turning a blind eye towards the developments in the international economic environment.

 

 


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