Daily Management Review

Coronavirus wipes off $420 billion from China’s stock market


The market selldown is despite apparent moves by regulators to curtail selling. Adding to investor worries is the economic impact of the coronavirus.

On Monday, with fears over the coronavirus spreading in China, China’s benchmark stock index dropped sharply erasing $420 billion from the market. The economic impact of the coronavirus has fueled widespread selling of the yuan and commodities on the first day of trading since China’s extended Lunar New Year holidays.
The market fall, came despite China’s central bank pumping in cash into the financial system and despite apparent regulatory moves to curb selling.
The total number of deaths from the coronavirus in China jumped to 361 on Sunday. On January 23, it stood at 17.
The coronavirus is creating an alarm because of its ability to spread rapidly and because much of it remains unknown.
“This will last for some time,” said Iris Pang, an economist at ING. “It’s uncertain whether factory workers, or how many of them, will return to their factories. We haven’t yet seen corporate earnings since the (spread of the) coronavirus. Restaurants and retailers may have very little sales.”
The stocks of more than 2,500 companies have fallen by their daily limit of 10%.
Midst the selldown, China’s central bank, the People’s Bank of China (PBOC) injected $173.81 billion (1.2 trillion yuan) into money markets through reverse bond repurchase agreements. Also, it unexpectedly cut the interest rate on short-term funding facilities by 10 basis points.
China’s securities regulator has also moved to limit short selling and has urged mutual fund managers not to sell shares unless they face investor redemptions, said sources.
“It is a clear message that they want to take growth-supportive measures and keep the market reassured,” said Mayank Mishra, macro strategist at Standard Chartered Bank in Singapore of the PBOC move. “They are managing the situation well. The timing of the repo rate cut came a little quicker than some people were expecting, but they wanted to send a clear message.”
Wuhan, the city where the virus originated, continues to remain in virtual lockdown. China is increasingly facing international isolation.
Analysts opine, the impact of the coronavirus will be significantly greater than the Severe Acute Respiratory Syndrome (SARS) outbreak in 2003.
“Although most analysts agree it is too early to estimate the impact of (the virus) on the global economy, one thing I am increasingly more certain of is that the near-term shock to Chinese economy will be much higher than that in SARS period,” said Tommy Xie, head of Greater China research at OCBC. “The shock to Chinese manufacturing and industry sectors is likely to be unprecedented.”