World stocks rose on signs that Chinese economic activity was starting to recover after the coronavirus outbreak, fueling hopes of a similar rebound elsewhere after the crisis has subsided.
But analysts have warned that the world’s second largest economy may suffer further, as the effects of the pandemic set stocks on track for their worst quarterly performance since the global financial crisis.
“There is no doubt that strong headwinds are coming with the spread of the virus globally,” said Hao Zhou, economist at Commerzbank.
The Chinese CSI 300 index of stocks listed in Shanghai and Shenzhen rose 0.5% on Tuesday while the Hang Seng in Hong Kong rose 0.9%. In Europe, the Stoxx 600 composite and the London FTSE 100 increased by more than 1.5%.
Official data showed that Chinese manufacturing activity returned to growth in March, as businesses slowly began to resume operations after the epidemic had previously shut down parts of the economy.
The National Bureau of Statistics purchasing managers’ index of 52 for the month marked a sharp jump from a record low of 36 in February. Any reading over 50 indicates growth.
Investors have kept a close eye on recent PMI measures in China to see how the world’s second largest economy is recovering, as the government appears to have contained the coronavirus epidemic. Beijing has launched large-scale stimulus packages to cushion the impact on the economy.
“Sentiment has recovered considerably after the recovery and the slowdown in contagion,” said Ken Cheung, chief currency strategist for Asia at Mizuho Bank, who said the numbers could be “a sign encouraging China’s recovery to come. “
But analysts have warned that the rebound may be fleeting. “This does not mean that production has now returned to its pre-virus trend,” said Julian Evans-Pritchard, senior Chinese economist at Capital Economics. “It just suggests that economic activity has improved slightly from the dismal February balance sheet.”
Elsewhere in Asia, the Japanese benchmark Topix fell 1.6%, fearing that the world’s third largest economy would face a second wave of coronavirus infections.
In the United States, the S&P 500 closed up 3.4% overnight, analysts citing huge government monetary and fiscal stimulus to stimulate sentiment. Futures contracts tilted the S&P 500 to open about 0.7% more.
Oil prices rose after a tumultuous start to the week in which American marker West Texas Intermediate fell below $ 20 a barrel. WTI rose 6% to $ 21.29 a barrel on Tuesday, while international benchmark Brent crude gained 1.1% to $ 23.02.
Sovereign bond yields fell as the 10-year US Treasury yield fell 0.04 percentage points to 0.682%. Yields fall as prices rise.
The coronavirus, which has shut down economies around the world and restricted the movement of billions of people, has caused a brutal liquidation of stocks in the past six weeks. The MSCI All World index has dropped more than 20% since the start of the year – its worst drop since the last quarter of 2008 – while the FTSE 100 lost a quarter of its value in the biggest drop since 1987.