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Chinese Stock Market Wiped Of $393 Billion Over Virus Fears

Chinese Stock Market Wiped Of $393 Billion Over Virus Fears
The first day of trade at the Chinese stock exchange after the Lunar New Year saw investors erasing about $393 billion from the country’s benchmark stock index as they sold the yaun and commodity stocks over fears of the spreading coronavirus and the economic impact it could have.
The Shanghai composite index witnessed its worst one day fall in more than four years with an almost 8 per cent plunge. The maximum lower limits were hit by Shanghai-traded commodities from palm oil to copper while the Chinese yuan sped past the important 7-per-dollar mark because of selling.
This rout on the stock market happened despite the Chinese government announcing its largest cash injection in the country’s financial system since 2004. The regulators too tried to reduce selling. But nothing seems to have convinced investors.
As of Sunday, the total number of deaths in China because of the coronavirus touched 361 while it was 17 on January 23 – the last time the Chinese stock markets had traded. Hence the concerns and fears of the virus’ impact played a huge role in the selling and the stock market rout. 
“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 major concerns about the novel coronavirus is the speed with at which it is spreading and little is known about it and about the treatments and vaccines for it. Investors are also worried of the impact on the Chinese economy because of the drastic response of the authorities in the country.
“This will last for some time,” said Iris Pang, Greater China economist at ING. “It’s uncertain whether factory workers, or how many of them, will return,” she said. “We haven’t yet seen corporate earnings since the (spread of the) coronavirus. Restaurants and retailers may have very little sales.”
China limits trading of stocks that drop below 10 per cent for a single say and on Monday, over 2500 scripts fell to that level. At the time of closure, the Shanghai Composite was 7.7 per cent lower at 2,746.6 which was its lowest since August 2019. At one point on Monday, it was 9 per cent down.
The commodities market dropped significantly with copper dropping by its daily limit of 7 per cent to touch its lowest in more than three years. There was a drop of more than 4 per cent in aluminum, zinc and lead while a 2 per cent drop in soybeans was noted.
There were irrational or even panic elements behind the stock market rout on Monday, said the People’s Bank of China (PBOC) in a newspaper commentary published after markets closed, and added that this was because of herd behavior,

Christopher J. Mitchell

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