China is paying a very heavy price for being the country from which the deadly coronavirus emerged, with its share market crunching, trade and tourism being heavily restricted and the entire country becoming isolated from the rest of the world.
Chinese stocks fell by as much as 9.1% or $625 billion when the local market re-opened for the first time since the Lunar holiday began on 23 January as thousands of Chinese stocks fell by the daily 10% limit.
The big falls on the CSI 300 Index (Shanghai and Shenzhen) accompanied some worrying commodity price declines for big trading partners such as Australia, with the benchmark Chinese iron ore contract thumping down by its daily limit of 8% while copper, crude oil and palm oil also fell by the maximum allowed.
Chinese government adding stimulus
As usual when Chinese stocks hit a significant speed bump, the government unveiled a range of stimulatory and precautionary measures to support companies, banks and individuals with plenty of liquidity.
The horror return from the already extended Chinese New Year break came as the death toll from the coronavirus reached 360, with more than 17,000 people infected.
Even as Chinese officials called for calm and urged investors to be objective about the effects of the virus and the People’s Bank of China chopped the rates on billions of dollars of short-term cash to help liquidity, the yield on Chinese 10-year bonds fell sharply and the yuan also tumbled.
While China has been keen to show that it is on top of the outbreak and is taking action to reduce the spread of the virus, many Chinese cities have extended the New Year break until 9 February and employees are being encouraged to work from home.
Travel restrictions hitting hard
Outbound travel from China has been severely restricted with restrictions now spreading to a wide range of countries including the United States, India, Australia, Indonesia, Singapore, Israel, Russia, New Zealand and the Philippines with that list of countries almost certain to expand.
Hundreds of flights out of China have been cancelled along with stepped up quarantine controls within the country, increasing worries about production levels out of China which is heavily integrated into world manufacturing.
China’s central bank has now offered to inject up to $255 billion into the economy to cushion the blow and that action did seem to limit the share market losses as trade continued.
Chinese problems spread across global share markets
Worries over the potential harm to businesses and trade from the outbreak have triggered big swings in share prices around the globe.
Australia was no exception with ASX 200 falling sharply on Monday – down by as much as 120 points in the first hour of trade.
The market did recover over the day though, with the ASX 200 ending down 93.9 points or 1.34% to 6923.3 points.
Losses were broad-based with all sectors declining, but energy companies were hit particularly hard as the prospect of slowing global activity slammed oil prices.
The big miners were also struck by the falling price of iron ore as the delays in industrial orders really hit physical demand.