Tuesday, 3 March 2020


As the paragraphs in bold highlight, China's financial markets are both rigged and doped. Sooner rather than later, they are bound to collapse. 

WHY Chinese Markets Are Proving Resilient to Coronavirus Turmoil

A large base of individual investors, supportive policy and relatively low valuations have helped

Despite the coronavirus epidemic beginning in China, shares there have remained relatively resilient.


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The novel coronavirus epidemic began in China and has shaken markets around the world. One surprising standout: Chinese stocks.
Shares in Shanghai and Shenzhen have been relatively resilient, even though the epidemic has already resulted in serious economic damage in China.
As of Monday’s close, for example, the benchmark CSI 300, which tracks larger stocks listed in either city, was down just 0.7% for the year—a far better performance than many international counterparts. Although an epic rally in U.S. shares Monday has helped narrow the gap, the S&P 500 still is down about 4.4% for the year.

The unusual nature of mainland Chinese markets helps explain the discrepancy, investors and analysts say. The markets are dominated by individual investors, comparatively isolated from the global system, and subject to high levels of government influence.
Chinese benchmarks tumbled in early February, after a long closure for the Lunar New Year, catching up with days of worsening news about the coronavirus epidemic, which originated from the city of Wuhan in central China. But they have since regained ground.
As of late morning Tuesday, the benchmark Shanghai Composite Index was down just 1.3% for the year, while the more technology-focused Shenzhen Composite is up 10.9% in 2020.
“The local (Chinese) investors are more sensitive to market momentum than fundamentals,” said Tai Hui, chief market strategist for Asia at J.P. Morgan Asset Management.
In this case, China’s millions of individual investors appear to judge that authorities have the situation under control. The virus is now spreading faster outside China than within, according to data compiled by Johns Hopkins University.
Also helping that perception: a range of measures to support the economy and the financial system. Among other moves, China’s central bank injected 1.2 trillion yuan ($171 billion) into the financial system in early February and has lowered benchmark lending rates so banks can lend more to businesses.
Last week, the central government cut taxes for small businesses and ordered state-owned banks to issue more loans to mitigate the economic fallout of the epidemic.
Role ReversalInternational investors now appear more worried about thenovel coronavirus than those in China, where the epidemicbegan.Index performance, year to dateSource: FactSetNote: Chinese stocks closed for an extended Lunar New Year breakstarting Jan. 24. *MSCI gauge is MSCI All World Asia Pacific index, indollars.As of March 3, 4:20 a.m. ET
%CSI 300S&P 500MSCI AsiaPacific*FTSE 100Jan. 13Jan. 27Feb. 10Feb. 24-15-10-50510MSCI Asia Pacific*xFeb 19, 2020x-1.3%
Five government agencies including the banking and insurance regulator and the central bank, issued a circular Monday telling banks to grant small businesses temporary deferment of loan principal and interest payments between Jan. 25 and Jun. 30.
On Monday, China’s construction and building materials sectors both jumped more than 8%, after Chinese media reported extensive plans by provincial governments to increase infrastructure spending.
“It is a trading market,” said Tham Mun Hon, head of Greater China research at UOB Kay Hian in Hong Kong. “Investors trade on the news of the government announcing what they will do.”
Southwest Securities said in a report last week that extra liquidity, or funding provided by the central bank, had helped push down short-term interest rates, in turn boosting the prices of high-growth stocks by making their valuations appear more attractive.
Government actions explicitly aimed at the markets have also worked to ward off a sustained rout, market participants say. These have included both overt and more subtle measures.
For example, Mr. Tham at UOB said the Chinese banking and insurance regulator has encouraged insurers to buy more equities by raising the cap from the previous limit of 30% of assets.
Less publicly, in February brokers were told to suspend their securities lending businesses, meaning clients can’t borrow shares, according to two mainland-based hedge-fund investors. Such a measure means investors can’t bet on market falls by short selling, or selling borrowed stock with the aim of buying it back later at a lower price.
Such actions fit into a longer pattern of Chinese authorities orchestrating market calm. In recent years this has included warning brokerages to police trades that are out of step with government wishes and phoning investors directly when they act out of line.

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