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Beijing Can't Save China's Stock Market from a Coronavirus Reckoning, Crypto Coins News

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Beijing Can't Save China's Stock Market from a Coronavirus Reckoning, Crypto Coins News
  • Chinese financial markets will open on Monday with a massive capital injection. [CNN]
  • By spending 1.2 trillion yuan to prop up the stock market, Chinese authorities hope to prevent a massive crash when trading resumes.
  • The government’s efforts will fail.
  • Chinese stock markets are set to reopen on Monday morning after an extended Lunar holiday break . Investors expect stocks to reel as coronavirus fears intensify. To stem the bleeding, Chinese authorities have decided to pump 1.2 trillion yuan ($ .8 billion (into the market) [PBoC] – but this won’t be enough to stop a massive correction when trading resumes.

    China Economy Is Already Suffering Fallout from the Coronavirus Outbreak

    The Wuhan coronavirus outbreak continues its deadly spread. The novel illness, provisionally known as – nCov,

    has infected almost 21, (people according to the latest data [CNN] [Johns Hopkins]. There have been over (deaths, with cases springing up in 55 countries.

    Chinese authorities have implemented wide-ranging travel restrictions to control the outbreak. But the country’s economy is already reeling from the virus.

    Many international companies have shuttered operations in China, including Toyota, Starbucks, and Foxconn, the supplier of Apple’s iPhone. Apple itself has also scaled back Chinese operations by closing down stores and offices in the country

    [Reuters]. Airlines headquartered around the globe are suspending flights to the mainland.

    U.S-traded equities with exposure to China are seeing significant declines in response to the outbreak. Investors can expect Chinese stocks to be even worse off.

    US stocks with exposure to China, including Apple (red) and Starbucks (black), have already been hit hard. | Source:
    Yahoo Finance

    (Government Intervention Won’t Save China’s Stock Market)

    Chinese authorities know their citizens are panicking over the coronavirus, and the last thing they need is a stock market collapse to make the situation worse. To prevent a crash, the government is intervening in the economy through capital injections and other strategies.

    The Chinese government will pump 1.2 trillion yuan ($ (billion) [PBoC] into financial markets to try and control volatility in equity prices. The capital will come in the form of reverse repo operations – a way of buying securities. The authorities will also employ less direct measures like subsidies and loans for business in the hard-hit Hubei region. [Chinese Ministry of Finance] But according to Bloomberg, this will only be a net increase of billion billion 40. 7 billion (because over ) 1 trillion yuan in short-term funds will expire on Monday [Bloomberg].

    That’s a drop in a bucket compared to the (trillion yuan in total market cap) estimated for Chinese equities in [Statista].

    Expect Panic Selling on Monday

    China-based ETFs are already showing signs of stress. | Source: Yahoo Finance The Chinese government will not be able to stop the panic selling when Chinese stock markets resume trading the Chinese economy is facing too many headwinds – from coronavirus to trade disputes and an (impending real-estate catastrophe

    ) .

    Unlike US stock markets, which are kept stable by big institutions and dispassionate algorithmic traders, Chinese exchanges are dominated by retail investors to the tune of

  • (%) . This means Chinese markets are emotional and hard to control. A good example of this is the Shanghai stock market crash in 2018 – when China biggest stock exchange lost (% of its value in) trading days despite authorities injecting 1.5 trillion yuan to prop it up
  • The coronavirus crash may not be as bad as the situation in 113456, but things could get to that point rapidly if China does get the deadly disease under control.

    Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com.

    (This article was edited by

    (Josiah Wilmoth) .

  • Last modified: February 2, 5: PM UTC

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