Virus fears wipe US$393b off China’s stock markets
Commodities hit daily limit down, onshore yuan 1% weaker, slides past 7-per-dollar
SHANGHAI/HONG KONG: Investors erased US$393 billion (RM161.5 trillion) from China’s benchmark stock index yesterday, sold the yuan and dumped commodities as fears about the spreading coronavirus and its economic impact drove selling on the first day of trade in China since the Lunar New Year.
A nearly 8% plunge on the Shanghai composite index was its biggest daily fall in more than four years. The yuan blew past the 7-perdollar mark and Shanghai-traded commodities from palm oil to copper hit their maximum down limits.
The wipeout came even as the central bank made its biggest cash injection to the financial system since 2004 and despite apparent regulatory moves to curb selling.
The total number of deaths in China from the coronavirus rose to 361 by Sunday, compared with 17 on Jan 23, when Chinese markets last traded.
“You wanted to know what a real decoupling from China might look like, or what a ‘What if everyone just stayed at home and didn’t buy anything?’ economic thought-experiment looks like? Well here you are, folks,” Rabobank strategist Michael Every said in an afternoon note.
The yuan began onshore trade at its weakest this year and was down 1.2% by the afternoon, sliding past the symbolic 7-per-dollar level to close at 7.0257.
Shanghai-traded oil, iron ore, copper and soft commodities contracts all posted sharp drops, catching up with sliding global prices.
More than 2,500 stocks fell by the daily limit of 10%. The Shanghai Composite closed down 7.7% at 2,746.6, its lowest since August and a modest recovery from early trade, when it was down nearly 9%.
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 surged, with March futures contracts for 10-year bonds jumping 1.4%.
The People’s Bank of China (PBOC) said the stocks plunge had irrational or even panic elements, triggered by herd behaviour, in a newspaper commentary published after markets closed.
Amid the selldown, the PBOC injected 1.2 trillion yuan (RM703.56 billion) into money markets through reverse bond repurchase agreements, the largest such move since 2004, DBS analysts said.
It also unexpectedly cut the interest rate on those short-term funding facilities by 10 basis points.
A commentary in a newspaper owned by the central bank said the impact from the virus epidemic on China’s economy will be limited and temporary, and the country’s financial markets will return to normal in the long run.
The virus outbreak would not change China’s sound long-term economic fundamentals, the commentary in the Financial News said yesterday afternoon. It also said the plunge in the country’s stock markets was due to some irrational factors, including panic selling triggered by a “herd effect”.
Earlier, the China Securities Regulatory Commission gave verbal instructions to major mutual fund companies, asking them not to offload their stock holdings unless necessary, according to the fund sources with direct knowledge of the so-called window guidance.
Selling in the following days should also be restrained, two sources said. – Reuters