China’s stock market indexes recuperate from coronavirus shock, boosted by government’s containment and stimulus policies
- Shanghai and Shenzhen benchmarks have recouped all the lost ground in the sell-off triggered since February 3 amid outbreak
- Stocks are propped up after unprecedented measures to contain the viral outbreak and policy stimulus
As far as China’s stock markets are concerned, the coronavirus outbreak did not happen. Analysts credited the state’s unprecedented containment measures and policy stimulus for limiting the sell-off to a one-day affair.
The Shanghai Composite Index and the Shenzhen CSI 300 Index, which track the nation’s biggest companies, have clawed back all the losses since the markets slumped by about 8 per cent on February 3. Even more impressive, the ChiNext gauge of small-cap technology companies in Shenzhen surged to a three-year high in that span.
The People’s Bank of China turned on the tap by lowering the reserve requirement ratio and borrowing costs for lenders, while also pledging to widen access to funding for small businesses to mitigate the damage to the economy. The move fanned speculations on easing measures to shore up the property market.
“The risk appetite has been recovering quickly and the momentum on the market is telling us that the pandemic will be contained soon,” said Dai Ming, a fund manager at Hengsheng Asset Management in Shanghai. “The government has stepped up the monetary and fiscal policies to stabilise growth. All these efforts have contributed to the decent run-up.”
The Shanghai Composite rebounded to 2,975.40 points on Wednesday compared with 2,976.53 on January 23 before China’s onshore financial markets closed for the Lunar New Year holiday. The CSI 300 rose to 4,051.31 versus 4,003.90. Stocks crashed as much as 8 per cent on February 3 when they resumed trading.
China’s tough measures to contain the viral outbreak, including locking down cities with 50 million population, is paying off, based on data released by the National Health Commission. The number of new confirmed cases dropped for 15 consecutive days through Tuesday in China, excluding Hubei province, the epicentre of the outbreak.
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“Our baseline assumption is that the aggressive response from the authorities in China and elsewhere will bring the rate of new infections down sharply by the end of [the first quarter]," Jan Hatzius, Goldman's chief economist, said in a research note. “If so, global economic activity should normalise in subsequent quarters.”
Still, the swift rebound in the benchmark stock indexes has other analysts perturbed about how stocks will perform in the coming weeks. After all, the Hang Seng Index, the barometer in Asia’s third-largest capital market, is still some way off from recouping its coronavirus-led losses.
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Shenwan Hongyuan Group is among those who say mainland share prices may have already outpaced their fundamentals. Investors will soon shift their focus to economic data from the liquidity-driven uplift, it added.
The Shanghai-based brokerage cut the 2020 earnings growth estimate for mainland-traded companies (excluding the banking and petroleum sectors) to 3.9 per cent from 9.7 per cent, citing the coronavirus impact, it said in a report on Monday.
Earnings will probably decline 9.4 per cent in the first quarter and 5.5 per cent in the second, analysts Fu Jingtao and Wang Sheng wrote.
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Chinese stocks have more room for upside and any dip would represent a buying opportunity, analysts led by Qin Peijing at Citic Securities wrote in a research note on Monday. China is likely to roll out more measures to support growth, such as higher tolerance of banks’ non-performing loans and waiver of transport fees, said the analysts, who favour technology stocks.
The virus’ impact on China’s economic growth and the rest of the world may be deep, but short-lived compared to the Sars (severe acute respiratory syndrome) outbreak in 2003 because of the stricter containment measures this time, according to Standard Chartered.
While valuations are likely to be supportive after the sell-off ends, this is not likely to matter much in the short-run, with liquidity acting as the market's main driver, according to Dutch asset management firm Robeco. “However, there should be attractive buying opportunities for long-term investors,” it said in a report this month.
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