CHINA – The investors’ fear was realized when Chinese stocks took a nosedive on its first trading day after a lengthy Lunar New Year break.
Shares took a battering and logged its biggest fall in five years. Commodities and the yuan also plummeted as fears over the Wuhan virus outbreak caused investors to distance themselves from China’s equities.
The Shanghai Composite Index slid down 7.7%, its worst return from a New Year break in about twenty years. It was a bloodbath as all sectors ended the day in the red. Out of the 1,500 companies listed, only 60 healthcare-related stocks closed with gains.
While shares in healthcare were up, commodity producers and the technology and telecommunications sector led the decline.
The CSI 300 index was also down by 7.9%. The benchmark tracks the 300 highly traded stocks in Shenzhen and Shanghai.
Beijing tried to cushion the fall by instigating new measures. The People’s Bank of China (PBoC) reduced short-term interest rates and injected an additional 150 billion yuan (or $22 billion) into the economy in a bid to ensure banks have enough liquidity.
The coronavirus issue couldn’t have come at a worst time, as the country’s economy was already experiencing a slow-down due to its previous trade war with the United States. China’s economic growth was pegged at 6.1% last year, the slowest expansion it experienced thirty years.
While a new trade agreement with Washington has already been signed, there are still tariffs on Chinese goods.
Analysts are also expecting China’s unprecedented market slump to have a larger economic impact. Tai Hui, the Chief Market Strategist of JP Morgan’s Asset Management Asia, said that the outbreak is still in its initial stages. He also noted that with the numbers expected to go up in the next few weeks, there will be more pressure on market sentiment.
Hui also said that while the markets are monitoring the situation, there’s also the reality of the effect the situation will have on factories if companies are extending their holidays. Cities like Shanghai and various provinces are on break until February 9.
The decline in China’s stock markets have also impacted other benchmarks in the region.
The Nikkei 225 went down 1.01% or 233.24 points from Friday. It closed at 22,971.94, its lowest since November 1. However, its sluggish performance was also due to Wall Street’s weak performance the previous week.
Singapore shares also went down today. The Straits Times Index declined 1.9% or 37.42 points to end at 3,116.31. Meanwhile, the Hang Seng index was able to put an end to two days of losses and saw a gain of 0.3% at today’s close.