Asian stock markets posted gains on Monday, March 2, 2020, even as new data revealed the worst month for China’s manufacturing sector since records began. The Caixin purchasing managers’ index for manufacturing dropped to 40.3 in February, the lowest reading since the survey started in 2004. Any figure below 50 indicates contraction, and 40.3 signals severe contraction.
Output, new orders, and employment all hit record lows within the survey. The collapse is directly linked to Beijing’s mass quarantines, which kept millions of workers at home and effectively halted production across the world’s second-largest economy.
Despite this grim economic news, markets in Tokyo, Hong Kong, and Shanghai reversed early losses to close higher. The Nikkei 225, which had fallen two percent earlier in the day, ended 0.9 percent up. Hong Kong’s Hang Seng added 0.7 percent, and Shanghai’s CSI 300 finished 1.1 percent higher. Futures on the S&P 500 also rose 1.4 percent, suggesting the positive sentiment would extend to New York.
The disconnect between dire factory data and rising stock prices is explained by central bank intervention promises. Bank of Japan Governor Haruhiko Kuroda issued an unscheduled emergency statement before Tokyo’s lunch break.
He pledged to monitor developments, stabilize markets, and provide sufficient liquidity through market operations and asset purchases. The statement did not include a rate cut but was a clear commitment to keep money flowing. Kuroda’s remarks echoed a rare Friday evening statement from U.S. Federal Reserve Chair Jerome Powell.
Powell said the Fed was closely monitoring developments and would use its tools to support the economy as appropriate. No specific actions were announced, but the mere promise of coordinated central bank support was enough to shift market sentiment.
Investors are betting that this coordinated response will blunt the economic shock from the coronavirus outbreak. The Caixin data, however, paints a stark picture of the real economy. The previous record low for the index was 40.9 during the global financial crisis, making the current reading even worse.
Sub-indices show output collapsed, new orders evaporated, and employment cratered. With millions confined to their homes, production has stopped, leading to lost income and falling demand.
Central banks cannot directly address these supply chain disruptions or compel workers to return to factories. They can provide liquidity and prevent credit markets from freezing, but the underlying problem of a pandemic shutting down production remains unresolved. Monday’s rally was modest—the Nikkei rose 0.9 percent, the Hang Seng added 0.7 percent, and the CSI 300 gained 1.1 percent—suggesting traders are willing to wait but remain unconvinced.
The real test will come when central bank liquidity runs out and factories remain silent.
