The big event of the week will take place at the very beginning of the week when the Shanghai Stock Exchange reopens for trading after being closed for a week for the New Year’s holiday. Mainland Chinese investors have been left on the sidelines unable to trade Shanghai-listed stocks while fears of the coronavirus have ripped through other markets in Asia and around the world.
It is logical to think that Monday will bring selling in Shanghai as investors and traders finally get a chance to react to the developing pandemic and to square their portfolios with drops in asset prices that have been recorded in other markets.
But how big a drop? One comparison–to the reopening of the Shanghai market after a bout of negative news in the U.S.-China trade war–suggests the decline could be as big as 6%. But quite frankly no one knows. (See my post yesterday on the 6% history and other factors for predicting the drop.)
Chinese regulators and officials at the People’s Bank have tried to reassure investors and traders with promises that liquidity will be more than adequate to the market’s needs and that companies that have had difficulties in meeting regulatory deadlines for filing will be granted extra time. The China Banking and Insurance Regulatory Commission, for example, will “suitably extend the grace period” for firms that have difficulty meeting the end of 2020 deadline to comply with new asset management rules. For instance, insurers with ample solvency will be allowed to “appropriately raise their investment” in equities from the current limit of 30% of assets.
The Commission also called for lowering interest rates, cutting fees, and providing more loans in heavily stricken areas to support the nation’s fight against the virus outbreak.
In a separate joint statement issued by regulators led by the People’s Bank of China, listed companies and bond issuers that are not able to submit their 2019 annual report or 2020 first-quarter report on time as a result of the virus were told they can apply for extensions from the stock exchanges.
The government, as is usual, in these situations of potentially large volatility swings, has urged brokerages and funds to guide investors to “rationally and objectively” evaluate the impact of the epidemic, and hold long-term and value-based investment philosophies.
No mention so far of any direct intervention in the markets to inject a specific amount of liquidity (or the potential mechanism for such an injection.)
And no mention of stimulus for the economy as a whole.
I expect announcements on both fronts in the not so distant future.
