Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Chinese Stocks Plunge in Worst End to Lunar Year on Record

Stock Markets Jan 23, 2020 03:15AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. Chinese Stocks Plunge in Worst End to Lunar Year on Record

(Bloomberg) -- Sign up for Next China, a weekly email on where the nation stands now and where it's going next.

Panic coursed through the world’s second-largest equity market as investors sold stocks on concern a deadly virus will worsen over China’s week-long trading break.

The Shanghai Composite Index settled 2.8% lower after the close of trading, its worst end to a Lunar Year in its three-decade history. More than 90% of the mainland’s 4,000 stocks fell on volumes that were 20% above average, with foreign traders selling $1.7 billion worth of the shares. The yuan weakened as much as 0.4% and government bond futures rose to the highest level since 2016.

Pressure is building on Beijing to contain a new SARS-like virus that’s killed at least 17 people and infected hundreds. The coronavirus first appeared last month in the city of Wuhan in central China, a city with 11 million residents -- more than in London or New York -- that’s now essentially in lockdown after officials halted public travel.

“Fear and panic are rampant,” said Wang Daixin, a fund manager at Bristlecon Pine Asset Management Ltd. “It’s hard to tell how bad things will get before a turn for the better. I didn’t get out when I had the chance to, so now I might as well sit it out rather than lose money. Others are offloading at whatever cost.”

The virus and its potential impact on the economy and financial system pose a growing challenge for President Xi Jinping. It comes at a time when the Communist Party is seeking to maintain stability in the face of a trade war with the U.S., the spread of swine fever, a debt mountain, rising corporate defaults and protests in Hong Kong.

China was criticized during the SARS epidemic 17 years ago for initially providing limited information and denying the scope of the problem.

A gauge of consumer-staples stocks -- some of last year’s top performers -- extended this week’s loss to 6.4%, the worst since October 2018. The Lunar New Year is a typically strong season for traveling and spending as families gather for the celebrations. Macau casino stocks also tumbled as the city reported its second case of the novel coronavirus and announced it would cancel all Lunar New Year festivities.

In Hong Kong, where two cases have also been confirmed, the Hang Seng China Enterprises Index dropped 2.3%. China Life Insurance Co. slumped to its lowest level in a month.

The final day before the Lunar New Year break is historically a good one for stock investors: since its launch in 1991, the Shanghai Composite Index had ended the session lower on only six occasions.

Shutting down Chinese markets has trained attention on the offshore yuan, as well as markets in Hong Kong and exchange-traded funds tracking Chinese stocks in New York or Europe. It will add an element of speculation to their prices when mainland bourses are closed. Hong Kong traders will return to their desks on Wednesday, while exchanges in Shanghai and Shenzhen will reopen Jan. 31.

In the U.S., owners of the more than $19 billion that tracks Chinese stock ETFs will have less information in deciding how much the securities are worth. The reaction from foreign investors can often be more severe: the Xtrackers Harvest CSI 300 China A-Shares fund, which holds mainland listed-shares only, fell twice as much as the underlying gauge earlier this week.

Without being able to trade for a week, investors are heading into the holiday blind. After an extended break last May, the Shanghai Composite fell 5.6% as investors reacted to escalating trade tensions with the U.S. The sell-off wiped out almost half a trillion dollars from Chinese equity values.

Bullishness Fades

“There’s going to be no way for investors to make a decision or change positions until post-Chinese New Year,” said Gavin Parry, chief executive at Parry Global Group in Hong Kong. “Either you’re going to have last minute moves today and tomorrow to get positions in place and take them off, or when we come back -- we’re going to get some decent volatility then.”

The virus has dented what had been growing enthusiasm toward equities. Confidence was riding high as Beijing signed a phase one trade deal with the U.S. and data signaled China’s economy was stabilizing. Margin debt had topped 1 trillion yuan as investors took on leverage to chase the rally, while privately-offered funds boosted their stock positions to the highest since early 2015.

“Markets were too heated up and there is room for profit taking,” said Nader Naeimi, head of dynamic markets at AMP Capital Investors Ltd. “We have sold Hong Kong shares, China A futures against the long broad EM basket this week. We’re just waiting for some heat and froth to come out before closing the shorts.”

Chinese Stocks Plunge in Worst End to Lunar Year on Record
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email