The Chinese market, the CSI 800 Index is down by about 8.3 percent indraday on Monday, adding to the 3 percent before the holiday on January 23rd. Markets are pretty much red across the board, but Chinese market selloff is dominating.
Its red across the board in mainland markets in China after they return from the lunar new year break that started on January 23rd. This is the worst selloff since 2015. China is said to restrict stock sales by brokerage prop desks.
We continue to see measures by Chinese government whether its lowering of borrowing costs or massive liquidity injections, all to cushion the blow from coronavirus outbreak. But so far, these measures appears to have failed to work in market’s favor.
Chinese government says they have full confidence that they can control this epidemic, and that they will be able to minimize economic impact.
Emerging markets index is down almost 5 percent since the start of this year. There was a lot of optimism about emerging markets, and this does throw some cold water on that. Of-course China makes up a very large percentage of this index, about 30 percent of MSCI index is made up of China.
So, what does this mean for the Chinese GDP? It is estimated that the GDP could fall to 4.5 percent for first quarter of 2020, which will be record low.
Many people are comparing this outbreak to SARS, that was in late 2002 and early 2003, but the fact of the matter is, China was a completely different beast back then. It made up a much smaller portion of global GDP. So if we want to extrapolate out what this might mean for the global economy, this time you can say its different, simply because China makes up a significantly larger portion of the global GDP. Its also more heavily reliant on services.
So when you compare 2002 to now, and if we try to extrapolate and get a true estimate, its really difficult to do, markets have a hard time handicapping something of that sort.