China stocks plunge amid bubble fears
Chinese stocks tumble nearly 9% amid concerns over coronavirus impact
Sale Destroys $ 445 Billion Total Market Value.
China’s stock markets have seen their biggest daily fall in five years as traders rushed to sell assets amid lingering concerns about the impact epidemic of coronavirus on the global economy.
The Shanghai Composite Index closed 7.7% lower to 2,746.6 points, its lowest level since August, recovering moderately after the start of trading, when it was down almost 9%. On Monday, trading took place on a wave of negative sentiment, which strengthened in 10 days during the long market closure for the lunar new year holidays.
Shenzhen composite index dropped 9.1% and dangerously close to daily maximum allowable drop of 10%, after which trading would be suspended.
The yuan sank 1.6% in continental trading, falling below seven to one dollar on its first day after the weekend. The offshore yuan, which has moved more freely and has traded since last week, also fell below 7 per dollar..
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The People’s Bank of China (PBOC) said the fall in stock prices had irrational or even panic elements caused by herd behavior.
Central Bank Advisor Ma Jun said the likelihood of a February 20 base rate cut has increased significantly.
Chinese securities regulators have decided to restrict short selling and have urged mutual fund managers not to sell shares unless they face buybacks, sources told Reuters..
«This is a clear signal that they want to take measures to promote growth and support the market, said Mayank Mishra, a macro strategist at Standard Chartered Bank in Singapore, of the NBK’s actions. – They handle the situation well. The repo rate cut time came a little faster than some expected, but they wanted to give a clear signal».
Beijing also said it would help firms that produce essential goods resume operations as soon as possible, CCTV said in a statement..
The new virus is alarming because it is spreading fast, much is unknown about it, and strong government action is likely to stall economic growth.
«This will last for a while», – says Iris Pang, economist at ING.
«It is doubtful whether the workers will return to the factories, she said. We have not yet seen corporate reporting since the (spread) of the coronavirus. Restaurants and retail can suffer significant losses».
«We do not see this as a buying opportunity at the moment.», – notes David Chao of Invesco, global market strategist in Asia outside of Japan. – We are in the midst of an escalation».
Sale in China disrupted Asian markets, although losses were subdued, because the fall was expected. The Hong Kong Hang Seng, which lost almost 10% in two weeks, closed with a 0.2% increase.
The rest of the Asia-Pacific region also saw strong selling: the Australian S index&The P / ASX200 closed down 1.34%. Nikkei Index in Tokyo Down 1%.
In Australia, the energy sector was hit hardest, with the index falling 3.77% after 15 minutes from the start of trading, as oil prices continued to decline amid a prolonged slowdown in the world’s second largest economy. Brent crude oil prices drop 51 cents to $ 56.11 a barrel.
Thanks to Australia’s close economic ties with China, huge iron ore and metallurgical coal exports, the Australian dollar fell to 66.87 US cents from 67.19 cents on Friday. Safe havens of gold and government bonds continued to benefit as investors avoided risk.
The Australian tourism and education industry is also heavily dependent on China. AMP economist Shane Oliver said a ban on foreigners from entering China could cut economic growth by 0.2% this quarter.