The drop recorded is the biggest in more than four years. The areas that have been hit the hardest are manufacturing, materials, and consumer goods. In the market healthcare shares increased rapidly.
More than 2,500 stocks fell by the daily limit of 10%. 2020 has seen the Yuan open at its weakest level this year at 1.2%, past the symbolic 7 per dollar cap, as the falls continued It has set the tone for the rest of the market in Asia.
The outbreak of the coronavirus has caused authorities to shut down public transport, entertainment venues, shops and reduce business hours. This has led to the economic activity of the country to come to a near standstill.
Recently the people’s Bank of China has announced that they will add 1.2 trillion-yuan ($173bn) worth of liquidity into the markets via open market reverse repo operations to tackle the economic slowdown.
Matthew Cady, investment strategist at Brooks Macdonald said:
Whilst this fall in domestic listed Chinese shares is significant, it was not unexpected. The Chinese markets had been on an extended holiday since 23 January for the Chinese lunar new year, as the authorities have sought to contain the fall-out from the Coronavirus outbreak. But whilst the Chinese domestic markets were closed, international markets had already been keeping pace with the outbreak’s development. As such, just to catch up with international markets. Chinese domestic listed equities were already expected to fall by around 8-9% just to catch up to where international markets were.
Others have also voiced opinions about the market and investment, strategists at Singapore’s DBS Group Research wrote in a note.
The authority may need to inject more cash in the rest of the week via reverse repo and/or medium-term lending facility to soothe market nerves.
Investors were prepared to brace for volatility when onshore trade in Chinese stocks, yuan, bonds, and commodities resumed after a global sell down on fears of the coronavirus impacts on the world’s second-biggest economy.
This will last for some time, said Iris Pang, Greater China economist at ING.
Head of personal investing at Willis Owen, Adrian Lowcock commented:
Just as investors returned from celebrating the Chinese New Year, the Chinese market tumbled as Hong Kong closed its borders to contain the Coronavirus. Whilst significant, much of the fall was linked to Chinese markets catching up with global market sell-off following the outbreak of the virus. Whilst the virus is going to have an impact on the Chinese economy, the Chinese government is not going to sit idly by and have already begun pumping money into the financial system.
It is hard for investors to sit and watch markets tumble as the virus continues to spread, but selling up and moving into cash is not without its risks. Whilst in the short term selling could protect from further potential losses, this could be easily offset if the money is not reinvested at the right time. Instead, many wait for markets to recover before returning, which could prove detrimental.
The people’s Bank of China has also planned to lower the rates of lending to aid companies, while financial regulators are delaying the implementation of new rules in order to prevent and avoid further tightening market liquidity.
Despite these efforts, some have predicted that the virus outbreak could shave off more than a percentage point for economic growth in the first quarter, thus pushing gross domestic product growth below 5%.
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