Chinese Virus wipes $420 billion off China's stock market

By Winni Zhou, Noah Sin

A men wearing a mask walk at the Shanghai Stock Exchange building at the Pudong financial district in Shanghai, China, as the country is hit by an outbreak of a new coronavirus, February 3, 2020.

SHANGHAI/HONG KONG -- Investors erased $420 billion from China’s benchmark stock index on Monday, sold the yuan and dumped commodities as fears about the Chinese coronavirus and its economic impact drove selling on the first day of trade in China since the Lunar New Year.
The market slide came even as the central bank poured cash in to the financial system -- a show of support for the economy -- and despite apparent regulatory moves to curb selling.
The total number of deaths in China from the coronavirus rose to 361 as of Sunday. 
It had stood at 17 when Chinese markets last traded on Jan. 23.
By lunchtime, the benchmark Shanghai Composite index sat 8% lower near an almost one-year trough and poised to post its worst day in more than four years.
The yuan opened at its weakest level in 2020 and slid almost 1.2%, past the symbolic 7-per-dollar level, as the falls soured the mood in markets throughout Asia.
Shanghai-traded oil, iron ore, copper and soft commodities contracts all posted sharp drops, catching up with sliding global prices.
The Chinese virus has created alarm because it is spreading quickly, much about it is unknown, and authorities’ drastic response is likely to drag on economic growth.
“This will last for some time,” said Iris Pang, Greater China economist at ING.
“It’s uncertain whether factory workers, or how many of them, will return to their factories,” she said. “We haven’t yet seen corporate earnings since the (spread of the) coronavirus. Restaurants and retailers may have very little sales.”
More than 2,500 stocks fell by the daily limit of 10%.
The Shanghai Composite last sat at 2,734.7 and the onshore yuan at 7.0165 per dollar.
Copper SCFcv1 sank to its lowest in more than three years, falling by its daily limit of 7%, while aluminum SAFcv1, zinc SZNcv1 and lead SPBcv1 shed more than 4% and soybeans DSAcv1 dropped 2%.
Bond prices, meanwhile, surged, with March futures contracts for 10-year bonds jumping 1.5% CFTH0.
(GRAPHIC: China stocks plummet as virus takes economic toll - here)


Amid the selldown, the People’s Bank of China (PBOC) injected 1.2 trillion yuan ($173.81 billion) into money markets through reverse bond repurchase agreements.
It also unexpectedly cut the interest rate on those short-term funding facilities by 10 basis points.
China’s securities regulator moved to limit short selling and urged mutual fund managers not to sell shares unless they face investor redemptions, sources told Reuters.
“It is a clear message that they want to take growth-supportive measures and keep the market reassured,” said Mayank Mishra, macro strategist at Standard Chartered Bank in Singapore of the PBOC move.
Beijing has also said it would help firms that produce vital goods resume work as soon as possible, state broadcaster CCTV reported.
Cities like Wuhan, where the Chinese virus originated, remain in virtual lockdown and China is facing mounting international isolation. 
Analysts are beginning to suspect the impact will be deeper than the hit delivered by the Severe Acute Respiratory Syndrome (SARS) outbreak in 2003.
“Although most analysts agree it is too early to estimate the impact of the Chinese virus on the global economy, one thing I am increasingly more certain of is that the near-term shock to Chinese economy will be much higher than that in SARS period,” said Tommy Xie, head of Greater China research at OCBC.
“The shock to Chinese manufacturing and industry sectors is likely to be unprecedented.”

President Trump's Trade Tweets Hammer China's Stocks and Currency

• Tech shares lead declines; ChiNext falls most since 2016
• State funds step in to stabilize the stock market

By Kana Nishizawa and Cindy Wang

Chinese stocks tumbled along with the yuan as a pair of tweets by President Donald Trump undermined confidence in a trade agreement.
The ChiNext Index of technology companies and small caps dropped the most since January 2016 as trading on mainland markets resumed after last week’s holiday. 

The yuan also weakened the most in three years before paring its drop. 

People familiar with the matter said Chinese state funds stepped in as they sought to stabilize the equity market, while at least one large bank offered to sell the dollar as the yuan fell, according to traders. 

State-backed giant PetroChina Co. suddenly erased its decline in afternoon trading before closing lower.
China is said to be considering delaying a trip by its top trade negotiators to Washington after Trump threatened the country with steeper tariffs over the pace of trade talks.
The news “distracts the market’s focus from a nascent economic recovery to short-term volatility. Risk assets will be under pressure for now,” said Hao Hong, chief strategist at Bocom International Holdings Co. 

“Because both parties want a deal, I continue to believe that the long-term uptrend trumps short-term volatility.”


If Chinese equities see significant selling pressure, authorities are likely to intervene to support the market, Hong said earlier.
Optimism that China and the U.S. would reach a deal on trade helped make Shanghai equities the hottest in the world this year, although lackluster corporate earnings and concern Beijing is easing back on stimulus dragged the Shanghai Composite Index down nearly 6 percent from its April high before Monday. 

The benchmark has failed to hold above a number of key support levels as popular trades unraveled.
The offshore yuan fell as much as 1.3 percent to 6.8218 per dollar, its lowest since Jan. 10, before trading at 6.7797 as of 4:30 p.m. in Hong Kong. 

The onshore rate slid 0.46 percent to 6.7659 per dollar.
“Investors will remain bearish on the yuan, as they reprice in trade war risks because the new developments are a reversal of previous positive progress,” said Ken Cheung, a senior foreign-exchange strategist at Mizuho Bank Ltd. in Hong Kong. 

“The news was unexpected. Stop-loss orders will push the yuan even lower.”
Trump previously delayed increasing tariffs on $200 billion in goods to 25 percent from 10 percent after agreeing to a Dec. 1 truce with Chinese dictator Xi Jinping to give negotiators time to work out a comprehensive agreement.
“The Trade Deal with China continues, but too slowly, as they attempt to renegotiate,” Trump wrote in a tweet on Sunday. 

“No!”
Trade-war proxy stocks tumbled Monday, with ZTE Corp. down as much as 13 percent in Hong Kong and pork producer WH Group Ltd. falling 12 percent. 

Exporters including Lens Technology Co. and Luxshare Precision Industry Co. both declined by the 10 percent daily limit in Shenzhen, while airlines and port developers also dropped. 

Gold producers rose as investors sought haven stocks.
Oil giant PetroChina briefly climbed as much as 0.8 percent in a sudden late afternoon surge, erasing a loss of as much as 3.5 percent in Shanghai. 

A similar pattern was seen for China Petroleum & Chemical Corp. as with Shanghai Composite’s heavyweight Industrial & Commercial Bank of China Ltd.
Chinese state-backed funds were active in selected stocks on Monday including two large oil companies, people familiar with the matter said. 

Mainland authorities have a history of intervening to smooth swings in the country’s $7 trillion stock market, though their efforts have had mixed success in recent years.
The Hang Seng China Enterprises Index slid 3 percent at the close in Hong Kong, while the Shanghai Composite Index retreated 5.6 percent. 

The CSI 300 Index sank as much as 6.8 percent, while the ChiNext at one point plunged 8.4 percent. Foreign investors sold onshore equities, offloading net 5.6 billion yuan ($828 million) through trading links, while mainland investors sold HK$4.2 billion ($541 million), the most since February 2018.
While a spokesman for China’s Ministry of Foreign Affairs said Monday that a delegation was still preparing to travel to the U.S. for talks, he didn’t answer a question about the date or whether the group would be led by the vice premier.
Sovereign bonds climbed, with the yield on 10-year government bonds falling 5 basis points to 3.35 percent.

China's middle class: We're being picked like leeks by the government

By Serenitie Wang

Beijing -- Spike Wang, a 29-year-old financial professional based in Shanghai, is struggling to live the Chinese dream.
Wang is one of millions of Chinese middle-class men and women who grew up in a roaring economy. Now, amid soaring rents and a plunging stock market, they are finding daily life increasingly difficult.
The past year has been especially tough.
Like many middle-class investors, Wang dumped most of his shares in Chinese stocks after his portfolio suffered a 40% loss in just two years.
Unable to afford a 37% rent increase, he left his old apartment in Beijing this year and moved to a cheaper apartment in Shanghai. 

But he still found the cost of living in China hard to handle.
"I can clearly feel that groceries are more expensive, especially in the second half of the year," he said.
The problem of economic distress among Chinese citizens is so common that there is a buzzword on China's cybersphere for people like Wang -- "jiucai" or leeks.
"I'm a typical leek that is picked in the stock market, rental market and as a consumer," said Wang.
Middle-class Chinese consumers call themselves "leeks," the popular green vegetable used in a Chinese cuisine, to express their fears about the economy or financial issues online.
It's a self-deprecating term implying they are being played for suckers, just faceless vegetables harvested by big companies and the government, especially amid the escalating US-China trade war and slowing economy.
Tongue-in-cheek reactions such as "the government is going to harvest the leeks again" or "we're being picked like leeks" are common among members of the middle class.

The forgotten people
China's middle class has rapidly expanded over recent decades amid an enormous economic boom which showered the country's citizens with unprecedented wealth.
Amid this rapid rise in living standards, Xi Jinping laid out his vision for the "Chinese dream," a propaganda term promising prosperity and an easy, affluent life.
But a slowing and uneven economy, threatened by US pressure, has caused growing worries for many across the country.
In one year, rents in Beijing have risen at least 40% in some areas, with residents telling state media they paid more than half their salary in rent.
One of the best measures of cost of living in China, the Consumer Price Index (CPI) has risen every month since May.
The recent China-US trade war has only stoked more uncertainty for the country's vulnerable middle class. 

In September, JPMorgan economists estimated that the trade war could cost China at least 700,000 jobs.

The Chinese stock market, into which millions of middle-class investors put their hard-earned savings, has plunged off the back of the US measures, falling more than 25% since January.
Originally, "leeks" was a term coined in China's stock market to refer to its vast base of retail stock investors, as many as 100 million.
The multitude of eager, dispensable investors grow and sprawl like leeks when the environment is favorable to growth. 

But when the stock market falls, the major players will survive while the average investors lose it all.
When the "harvested leeks" are forced out of the market, fresh inexperienced leek investors will sprout up to repopulate the market in a very short time.
The middle class feels it is being "picked" by the government as well as the stock market, according to Zhang Lin, an independent economics commentator.

"The real 'leeks' are the same group of the middle class whose interests are sacrificed amid the trade war," Zhang said. 

Among them are white collar workers in private sectors and owners of small to medium-sized businesses.
Two new laws in particular, adopted to reinforce state economic control after the outbreak of the trade war, have been seen as "leek harvesting" by online commentators, stirring fury and fear from the group.
A new e-commerce law has taxed the country's lucrative online businesses such as taobao.com, from which some middle-class people have made a fortune, while a change in the collection of the mandatory social welfare fund has added to the financial burden on small businesses.
Chris Xing, who works for an internet start-up in Beijing, said the new policy has caused labor costs to rise and his company is struggling.
He said the interests of the middle class are being sacrificed to save the Chinese government from the brewing trade war, and Zhang agrees.
"(The government thinks) more needs to be squeezed from the private sector so that the state has the firepower to accelerate spending on infrastructure and investments ... to counterbalance the impact of the trade war," Zhang said.

'Meat on the cutting board'
Although the origin of the term leeks was related to finance, Chinese internet users have expanded it into the political realm to vent their frustration about political and social control.
When state media editorials in August pushing for penalties against families with less than two children were widely mocked, social media users joked that the "country is desperate for more leeks to be harvested."
"China's middle class ... lack power to change the law or to lobby with interest groups," said Zhang, "Without rights, assets are unprotected, and middle class has to face more uncertainties."
As people worry about the imminent economic winter, with little clear end in sight to the US trade war, many are trying to save money, giving rise to a phenomenon called "consumption downgrades."
An article titled, "This generation of young Chinese, be ready for the bitter days ahead," has circulated widely on the Chinese internet in recent months.
As smog season begins, China wary of leaving residents without winter heat

The author, Ma Ning, says that "things have changed" since the years of "consumption upgrade," back during the boom times of the country's economy.
"Yearly gym memberships are swapped for cheaper, monthly ones. Apps for second-hand goods trading reached a new high. Chinese pickle stock has risen 200% in the past year ... Even the avocados ... are not that popular anymore," she said in the piece.
Chinese state media claims there is no such thing as the "consumer downgrade," saying consumers were just "calmer and more sophisticated."

Both ordinary middle-class consumers in China's cooling economy, Wang and Xing, told CNN they are quietly changing their lifestyles.
Wang said he would think twice before eating out and opt instead for buying groceries in bulk and cooking on his own at home.
Xing, the Beijing start-up employee, said although he is able to swallow the rising costs for now, he would probably defer some big purchases.
Among the expenditures to be avoided is another child for and his wife. 

It's just too expensive, he says.
"Rather than leeks, I feel like I'm more of 'the meat on the cutting board,'" Xing said. 

"We hold no sway over tax, the policy-making, the reality."

MSCI: Companies In Vietnam Get A Grim Reality Check As China Gets A Lift

By Ralph Jennings

This picture taken on Feb. 21, 2017 shows new high-rise buildings in Saigon.

Vietnam had just finished medicating the sting of Donald Trump pulling the United States out of the Trans Pacific Partnership. 

That trade deal would have lifted exports from Vietnam, where the economy is already growing around 6% per year largely because of a boom in manufacturing. 

Just as Vietnamese officials figured they could lean on a 2015 trade pact with the European Union and work with Japan on a revived Trans Pacific Partnership, they got more sour news.
This week the venerated New York-based builder of stock market indices MSCI placed China’s relatively mature “A” shares in its emerging market index but effectively decided Vietnam’s exchange didn’t qualify. 

A spot in the index would have pushed several hundred exchange-traded funds that track the index to shift a bunch of investor money into Vietnamese stocks, an obvious boon for the capital market that has grown keen over the past two years on luring foreign investment. 

Vietnamese stocks posted Southeast Asia's biggest percentage gain in 2013.
MSCI dissed Vietnam this year by declining to place domestically traded shares on a list of countries for review. 

A review could lead to inclusion on the emerging markets index, but Vietnam will stay in MSCI's Frontier Markets Asia Index instead. 

Although 36 Vietnamese firms had opened to majority foreign ownership or were in the process as of April, continued limited access from abroad still hurts, Hanoi-based SSI Research said in a note Wednesday. 

“The key issues for Vietnam still hinge on conditions of foreign ownership, including individual stock foreign ownership limits and total market-wide foreign ownership limits, and especially…the allocation of equal rights to foreign investors,” the note says. 

“Under the MSCI assessment, Vietnam was judged to be ranked the lowest level among frontier markets on conditions of foreign ownership.”
Prospects of Vietnam making it onto MSCI’s review list by 2018 are “quite bleak” without “major improvements” to market accessibility and ownership limitations for foreign investors over the next half year, SSI Research adds.
Vietnamese shares, though seen as a proxy for its economy, leave more for improvement than just access, people close to the market add. 

“Questions like market access, lack of English-language material, accounting standards and currency are still to be tackled, although a lot of progress has been made on the liquidity and market capitalization to GDP fronts,” says Fiachra MacCana, research head at the stock brokerage Saigon securities.
Some of the 800-plus companies on exchanges in Hanoi and Saigon now attract investors for their business savvy and transparent management. 

An example of both is the dairy producer Vinamilk.
But a lot have come under fire over patchy, slow accounting rather than the type a lot of foreign fund managers prefer to see. 

Then you get the not-so-international management standards of government owners. 

About 3,000 Vietnamese firms were partly state-owned as of 2015, in some cases after partial privatization under the Communist country free market reform efforts. 

Penalties for what Westerners would consider insider trading are light as well, says Frederick Burke, partner with the international law firm Baker & McKenzie in Saigon. 

“There’s no criminal consequences for things that we would consider market manipulation,” he says.