Chinese Stocks and Their Worst Day

On Monday, it was the first day of trading after the Lunar New Year Holiday. Stock markets in China were closed since January 24. The first day was tough for the Chinese stocks as the coronavirus outbreak had a huge impact on the markets.

The Shanghai Composite fell 7.7%. Meanwhile, the Shenzhen Component Index declined by nearly 8.5%.

It is important to mention that losses eliminated $445 billion in market value. This is a severe problem. It was the worst day for Shanghai Composite since August 2015’s “Black Monday.” During that period, the possibility of an economic slowdown in China caused problems for the stock markets.

The impact is even bigger for the Shenzhen, as last time it experienced similar problems more than ten years ago.

However, global markets had several days to react to the virus outbreak, whereas it was the first trading day for the mainland Chinese stocks after an extended holiday. The Chinese government was forced to extend the holiday as authorities are trying to control the outbreak.

The central bank and Chinese stocks

Chinese authorities knew that coronavirus would create huge pressure on the stock markets. On Sunday, the People’s Bank of China said it would inject 1.2 trillion yuan ($173 billion) in the Chinese markets. Bank plans to buy short term bonds to boost banks’ ability to lend money.

Moreover, the central bank will also keep contact with financial institutions and markets. This way it will be easier to monitor the situation and to determine if there is a need for additional policy responses.

The Chinese government is working hard to protect the financial markets and economy. This is a top priority for the government. Chinese stocks had a bad day on Monday. This shows that the government should deal with problems as the growth rate could fall by two percentage points in the first quarter.