Concerns about the coronavirus erase $ 420 billion from China's stock market
SHANGHAI/HONG KONG: Investors erased $ 42020 million from China's benchmark index on Monday, sold the yuan and dumped commodities due to fears of the spread and its economic impact that boosted sales on the first day of trade in China since the Lunar New Year.
The market downturn occurred even when the central bank invested cash in the financial system, a show of support for the economy, and despite the apparent regulatory movements to curb sales.
The total number of deaths in China from the coronavirus increased to 361 as of Sunday. It had remained at 17 when Chinese markets last traded on January 23.
At lunchtime, the benchmark index was 8% lower near a minimum of almost a year and was ready to publish its worst day in more than four years.
The yuan opened at its weakest level in 2020 and fell almost 1.2%, beyond the symbolic level of 7 per dollar, as the falls impaired the mood in markets throughout Asia.
Petroleum, iron ore, copper and soft commodities contracts that are negotiated in Shanghai registered sharp falls, catching up with the fall in world prices.
The new virus has created alarm because it is spreading rapidly, much is unknown, and the drastic response of the authorities is likely to drag economic growth.
This will last for some time, said Iris Pang, an economist for Greater China at ING.
It is not clear if factory workers, or how many of them, will return to their factories, he said. We have not yet seen corporate profits since the (spread of) coronavirus. Restaurants and retailers may have very few sales.
More than 2,500 shares fell by the daily limit of 10%. The Shanghai Compound was last located at 2,734.7 and the yuan on land at 7.0165 per dollar.
Copper fell to its lowest level in more than three years, falling by its daily limit of 7%, while aluminum, zinc and lead threw more than 4% and soybeans fell 2%.
Meanwhile, bond prices rose, with March futures contracts for 10-year bonds rising 1.5%.
In the middle of the sale, the People's Bank of China (PBOC) injected 1.2 trillion yuan ($ 173.81 billion) in the money markets through reverse bond repurchase agreements. It also unexpectedly reduced the interest rate of these short-term financing services by 10 basis points.
China's securities regulator moved to limit short sales and urged mutual fund managers not to sell shares unless faced with investor refunds, sources told Reuters.
It's a clear message that they want to take measures to support growth and keep the market calm, said Mayank Mishra, macro strategist at Standard Chartered Bank in Singapore on the PBOC measure.
They are handling the situation well. The moment of the repurchase rate cut came a little faster than some people expected, but wanted to send a clear message.
Beijing has also said it would help companies that produce vital goods to resume work as soon as possible, state broadcaster CCTV reported.
Cities like Wuhan, where the virus originated, remain in a virtual blockade and China faces growing international isolation. Analysts begin to suspect that the impact will be deeper than the blow produced by the Severe Acute Respiratory Syndrome (SARS) outbreak in 2003.
Although most analysts agree that it is too early to estimate the impact (of the virus) on the global economy, one thing I am increasingly sure of is that the short-term impact on the Chinese economy will be much older than in the SARS period, said Tommy Xie, head of research for Greater China at OCBC.
The commotion in the Chinese manufacturing and industrial sectors is probably unprecedented. ($ 1 = 6,9040 Chinese yuan)