Share prices in Hong Kong dived during May on the news that China was set to make national security laws for the territory, clamping down on dissent and raising questions over Hong Kong’s special economic status.
- Recession deepened in Hong Kong
- Export activity weakened in the region
- The Bank of Korea cut its key interest rate
To view the series of market updates through May, click here
Share prices in Hong Kong dived during May on the news that China was set to make national security laws for the territory, clamping down on dissent and raising questions over Hong Kong’s special economic status. US Secretary of State Mike Pompeo warned that this would be “a death knell for the high degree of autonomy” that Beijing had promised for Hong Kong. In response, the Chinese authorities asked the US to stop “meddling” in Hong Kong’s internal affairs. Elsewhere, the territory’s recession deepened during the first three months of 2020 as the economy contracted by 5.3% quarter on quarter. Activity was hampered by a sharp drop in tourism and weak exports; exports of goods declined at an annualised rate of 9.7%, while exports of services dropped by more than 37%. The Hang Seng Index fell by 6.8% during May.
“Japan’s economy moved into recession”
Japan’s economy moved into recession during the first quarter: having already contracted in the fourth quarter of 2019, the country’s economy shrank by 3.4% year on year during the first three months of 2020, dragged down by deteriorating demand and weak export activity. Exports fell at an annualised rate of 21.9% during April, while imports dropped by 7.1%. Over May, the Nikkei 225 Index rose by 8.3%, while the Topix Index and the TSE Second Section Index climbed by 6.8% and 8.9% respectively.
The Bank of Korea (BoK) cut its key interest rate by 25 basis points to a record low of 0.5%. The central bank also reduced its forecast for economic growth this year from 2.1% to 0.2%, before recovering to grow by 3.1% in 2021, and downgraded its inflation forecast for 2020 from 1% to 0.3%. The Kospi Index rose by 4.2% in May.
The Reserve Bank of Australia (RBA) maintained its key interest rate at 0.25% during May, but policymakers predict that the coronavirus pandemic could result in a 10% decline in GDP during the first six months of 2020 and warned that “an economic contraction of such speed and magnitude would be unprecedented in the 60-year history of Australia’s quarterly national accounts”. Nevertheless, although interest rates are predicted to remain unchanged for some time, the RBA does not expect to need to expand quantitative easing measures or to resort to using negative interest rates. The ASX All Ordinaries Index rose by 4.9% over the month.
A version of this and other market briefings are available to use in our newsletter builder feature. Click here
