The Shanghai Composite dropped 7.7% and the Shenzhen Component Index plunged 8.45% as Chinese markets reopen for the first time since January 24
Feb. 3, 2020
In the worst trading day in China for years, markets have nosedived amidst coronavirus fears. Chinese Markets had been closed since the 24th of January due to the Lunar New Year Holidays, the timing of which amplified the losses incurred today. While international markets have been able to react to the coronavirus on a day-to-day basis, this is Chinese investors first opportunity in 10 days and the sell-off was swift. Losses incurred today shaved off $445 billion in total market value.
While the closure of the markets may have increased today’s losses incurred by Chinese businesses, it has also given the government time to react to the inevitable sell-off. The People’s Bank of China has announced that it will pump $173 billion into the markets through the purchase of short-term bonds, a move that is intended to ensure ‘reasonable ample liquidity’ in the banking markets. Regulators have also announced companies affected by the virus can delay quarterly earnings reports.
The virus is predicted to cause severe damage to China’s economic growth, with some economists predicting a slowdown which could cost the Chinese economy up to $60 billion in lost growth.
Impact of the Coronavirus So Far
Off the back of the World Health Organization announcing a public health emergency on Thursday night, companies across a swath of industries have had to react.
- Apple (NASDAQ:AAPL) announced it would temporarily close its Chinese stores and factories, seeing the stock dip over 4%
- Starbucks (NASDAQ:SBUX) has shut down over half of its Chinese locations.
- Disney (NYSE:DIS) has locked the gates of its Shanghai and Hong Kong parks until further notice.
- Tesla’s (NASDAQ:TSLA) announced it’s current quarterly profit will be affected due to an extended closure of its Shanghai Gigafactory.
- Google (NASDAQ:GOOG) has temporarily closed its Chinese offices and restricted employee travel.
- Airlines such as Delta (NYSE:DAL), United (NASDAQ:UAL) and American (NASDAQ:AAL) have all seen their stock prices dip as they’ve suspended travel to China.
The fear of a global pandemic has had a somber effect on the domestic markets, with the Dow dropping over 2% on Friday, its worst day since August, and the S&P dropping 1.8% over the course of the week, its worst since October. What had been a seamless start to the new decade has turned into a significant market pullback, with the coronavirus’ impact stopping the rally in its tracks. Could it be the catalyst in a wider pullback as market sentiment sours, or does the most robust bull market in recent history have more fight left in him?
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