China’s stock markets lose $420 billion over virus fears

It was a very Black Monday for a very beleaguered nation, which is facing growing isolation as countries shun it. The coronavirus outbreak in China has not only taken a toll on human life, but also on the economy. Over $420 billion have been wiped off the country’s benchmark stock index as the markets dived perilously. The casualties due to the virus mounted to 361 and over 17,000 people have been affected.

Fears about the rampant disease and its economic impact catastrophically dented the first day of trade in China since the advent of the Lunar New Year.

The Shanghai stock market posted its worst day in over four years.
The market slide came even as the central bank poured cash into the financial system – a show of support for the economy – and despite apparent regulatory moves to curb selling.

• Yuan opens at lowest level

• Shanghai stock exchange faces worst day in over four years

• Beijing goes into damage control overdrive,  to help firms that produce vital goods resume work as soon as possible

By lunchtime, the benchmark Shanghai Composite index sat 8% lower near an almost one-year trough and poised to post its worst day in more than four years.



A volunteer takes the temperature of a scooter driver at a roadside checkpoint in Hangzhou. Associated Press

The yuan opened at its weakest level in 2020 and slid almost 1.2 per cent, past the symbolic 7-per-dollar level, as the falls soured the mood in markets throughout Asia.

Shanghai-traded oil, iron ore, copper and soft commodities contracts all posted sharp drops, catching up with sliding global prices.
The new virus has created alarm because it is spreading quickly, much about it is unknown, and authorities’ drastic response is likely to drag on economic growth.

“This will last for some time,” said Iris Pang, Greater China economist at ING. “It’s uncertain whether factory workers, or how many of them, will return to their factories,” she said. “We haven’t yet seen corporate earnings since the (spread of the) coronavirus. Restaurants and retailers may have very little sales.”

More than 2,500 stocks fell by the daily limit of 10%. The Shanghai Composite last sat at 2,734.7 and the onshore yuan at 7.0165 per dollar.
Copper sank to its lowest in more than three years, falling by its daily limit of 7%, while aluminium, zinc and lead shed more than 4% and soybeans dropped 2%. Bond prices, meanwhile, surged, with March futures contracts for 10-year bonds jumping 1.5%.

Clear message

Amid the selldown, the People’s Bank of China (PBOC) injected 1.2 trillion yuan ($173.81 billion) into money markets through reverse bond repurchase agreements. It also unexpectedly cut the interest rate on those short-term funding facilities by 10 basis points.

China’s securities regulator moved to limit short selling and urged mutual fund managers not to sell shares unless they face investor redemptions, sources told Reuters.

“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.”

Beijing has also said it would help firms that produce vital goods resume work as soon as possible, state broadcaster CCTV reported.
Cities like Wuhan, where the virus originated, remain in virtual lockdown and China is facing mounting international isolation. Analysts are beginning to suspect the impact will be deeper than the hit delivered by 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 the 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.”