Chinese Stocks Resilient as Virus Slows

Chinese stocks fared better than its global peers this year even as investors pulled out due to the COVID-19 outbreak. Its stocks were down but Beijing’s effective containment of the outbreak is the key reason for China’s relative resilience. The number of new cases fell inside the country but rose elsewhere in the world.

Another key reason for its recovery is the promise of policy stimulus to support the Chinese economy. More fiscal and monetary policy measures can shore up demand.

Global stock markets have tumbled due to the novel coronavirus pandemic. As investors rush for the safety of dollars, foreign portfolio outflows from mainland markets are set to hit a record.

When COVID-19 first gripped the markets since Feb 20, the S&P500 index and the MSCI world price index both dropped nearly 30%.  On the other hand, China’s benchmark Shanghai index dropped about 15% from mid-January through mid-March.

Beijing strives for a speedy recovery and Chinese policymakers have already started implementing its stimulus.  Its people expect measures to include more spending by local governments on infrastructure. In 2008, Beijing used its infrastructure sector to boost growth during the global financial crisis.

Niu Chunbao, chief investment officer at Wan Ji Asset said it is essential that the authorities prop up traditional infrastructure.

Chinese Stocks Losses are More Limited

The lower valuations of Chinese Stocks is a reason for limited losses. According to Fu Yanping, an analyst at China Galaxy Securities, A-shares are relatively cheaper while their Wallstreet peers were at record highs before the slump.

A rush for dollar safety pushed massive liquidation of stocks, bonds, and emerging market currencies as global markets tumbled. Foreign investors have been heavy sellers in the A-share market in recent weeks.

Net-selling by foreign investors via the Stock Connect scheme totalled about 70 billion yuan or $9.91 billion as of Friday. The scheme allows overseas investors easier access to China’s equities market.

Consumer equities, one of the foreign investors’ exposures in the A-share market suffered sharp losses in February. The drop in yuan worsened the outflows and it posted its worst week in seven months as the dollar surged.

Investors who are eager to buy cheap stocks and bonds overwhelmed Chinese funds that facilitate domestic investment.

In stock trading, Chinese stocks hit a one-week high hoping that U.S. stimulus plans would support the world’s largest economy. Mainland China reported a drop in the number of new confirmed COVID-19 cases and no locally transmitted infections were report.

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