Workers use their laptops near a display showing sales data at the command center at the ... [+]
China’s stock market fell on Monday. Anyone who was surprised by that is asleep at the wheel.
Considering the U.S. has been selling mainland China equities for the past three days during the Luna New Year holiday, it was a given that Shanghai and Shenzhen would be in sell mode today just to pay out the foreigners. The People’s Bank of China provided some liquidity for the stock market, while the locals — ever the prudent gambler — bought up the stocks that will do well in a scenario of Chinese cities under lock-down orders because of the spreading coronavirus.
So while there are now more than 17,000 cases and 362 deaths from the novel coronavirus that started in the city of Wuhan, where most of the cases and deaths are happening, it’s not going to stop a billion Chinese people from eating, shopping or playing games online. It will entice them to buy surgical masks and over-the-counter medication, even if only as a placebo preventative, sending China pharma-related stocks “through the roof.”
Nailed it...
Shanghai Pharmaceuticals and its peer group all rose on Monday, beating the Shanghai Composite Index ... [+]
Craig Botham, an emerging markets economist for Schroders, pointed out on his Twitter feed today that China’s GDP growth is not coming from travel and transportation. Services, including financial services, and retail are where it’s at for China’s economy.
China’s e-commerce stocks all did better than the Shanghai and Shenzhen indexes today. Shanghai fell 7.7%. Shenzhen fell 8.4%. The big China e-commerce names outperformed by a lot.
JD.com (JD) is up over 4.25% in late morning trading in the U.S.; Alibaba (BABA) is up 3.7%; Tencent Holdings was up 2.8%.
Investors, both local and foreign, are not abandoning China equity because of the ongoing public health emergency.
JD.com is one of China's largest online retailers. It also runs a grocery store chain and partners ... [+]
Financial services firms are also up. China Life Insurance (LFC) was up 0.76%. Keep in mind this was always considered China’s D-day as it was the first day of trading since the holiday break. The coronavirus worsened over that week-long time period.
China’s biggest bank, the Industrial and Commercial Bank of China, saw its share price settle 0.7% higher in Hong Kong today and China Construction Bank’s shares closed 1% higher.
Even though pharma, e-commerce, and the state banks are seen as safe havens, a worsening death toll will impact sentiment. Investors seem keen on the coronavirus leading to at least as many deaths as did SARS in 2003. That took the lives of 775 people over an 8 month period. This coronavirus has taken the lives of half that in around two months. The question now is how long does it take for people with the virus to recover, and will the number of people with the virus start to decline? Until then, death tolls are seen beating SARS numbers next week.
Another dip tomorrow is expected due to the large number of stocks that hit their limit down today. Shanghai and Shenzhen exchanges cut off trading once a stock has fallen by 10%. This “circuit-breaker” is designed to protect companies from panic selling and automated trades as prices quickly hit stop limits programmed by investors, triggering even more selling.
People wear protective face masks as they make purchases from a convenience store in Hong Kong on ... [+]
Despite the sell-off today, Hong Kong to Shanghai/Shenzhen trading volumes were large with foreign investors buying $2.59 billion of mainland stocks; probably all the aforementioned names in the e-commerce and pharma space.
“New China economic sectors are much better positioned versus Old China economic sectors,” says Brendan Ahern, CIO for KraneShares in New York. “Economic fallout from coronavirus? Economists and brokers are scrambling to figure this out,” he says, citing one of their brokers in China pointing out that Hubei accounted for 4.6% of China’s GDP and 1.3% of China’s exports in 2019.
The outbreak is concentrated in Hubei. The majority of cases in the U.S. are people who traveled to Wuhan. There is one case in Chicago where a person caught the virus from someone who was recently in Hubei, China.
It seems like China is working hard at containing the virus. One look at the Johns Hopkins University map highlighting the pandemic makes it clear that all of this is happening around Wuhan.
Authorities are taking no chances nationally as GDP and retail sales estimates will be lowered at a time when China looked to be coming out of the economic doldrums.
The XTrackers China CSI-300 A-Shares (ASHR) exchange traded fund is down 13.9% year-to-date because of the outbreak. It will likely fall another 10%, putting the A-shares in a bear market this year.
If past outbreaks, like SARS, are any indicator, a 20% to 30% drop in the market caused by a public health crisis quickly turns into a buy, according to financial research firm Refinitiv. Quant funds will be all over this. Wait for it.
If so, then a reverse course takes place in China only when ASHR is down by 20%, meaning it still has at least a 7% downside. That’s likely to take place this week.
In a worse case scenario, should people outside China start dying from coronavirus complications too, market sentiment will deteriorate fast and at that point the JD’s and the Alibaba’s of China will find it hard to escape the Wuhan flu.
