Beijing is poised to pump extra cash into China’s financial system on Monday, as part of a package of emergency measures to shield the economy from the effects of the deadly coronavirus outbreak.
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China’s central bank said on Sunday that it would provide Rmb1.2tn ($173bn) in additional liquidity to money markets, as trading was set to resume on the country’s stock exchanges following an extended closure.
The liquidity injection will be China’s largest single-day open market operation since 2004, according to Bloomberg, although the net addition of liquidity will be lower because more than Rmb1tn of short-term funds will mature on Monday.
The People’s Bank of China also plans to lower lending rates to support companies, while financial regulators have delayed the introduction of new rules in order to avoid further tightening market liquidity.
More than 14,000 people have been infected with the coronavirus in China and more than 300 people have died, according to health authorities. The number of infections is already greater than the total during the outbreak of severe acute respiratory syndrome, or Sars, in 2002-2003, which caused several months of market turbulence in China.
The Philippines reported the first death outside China on Sunday, as a number of countries imposed restrictions or outright bans on people travelling from China.
The crisis has led to the quarantine of about 40m people in China’s Hubei province, where the disease first appeared in December and forced some of the country’s largest cities and manufacturing centres to extend the Lunar New Year holiday.
Some economists in China have predicted that the outbreak could shave more than a percentage point off economic growth in the first quarter, pushing gross domestic product growth below 5 per cent.
China’s markets shut for the Lunar New Year on January 24. The holiday period was extended three days until February 3 as a result of the coronavirus outbreak.
Hong Kong’s Hang Seng index closed down 2.8 per cent when the market resumed trading on Wednesday after the Lunar New Year break, with travel and tourism-related companies hit by fears that the outbreak would disrupt travel.
In contrast to 2003 with Sars, we’re now a decade into a bull market and valuations of some financial assets are stretched
Simon MacAdam, Capital Economics
Analysts said the virus — and efforts to contain it — were likely to hurt company performance and hit stock prices when they resume trading on Monday.
“In contrast to 2003 with Sars, we’re now a decade into a bull market and valuations of some financial assets are stretched,” said Simon MacAdam, global economist at Capital Economics, in a note to investors. “The new virus is a plausible catalyst for a market correction.”
The PBoC is partnering with several other Chinese financial regulators, such as the foreign exchange and banking watchdogs, to manage the impact of the virus on an economy that was already growing at its slowest pace in 29 years.
China’s banking and insurance regulator said on Saturday that it would extend a deadline beyond the end of 2020 for companies to meet new asset management rules. The regulations were part of a multiyear crackdown on shadow banking that led to a tightening on liquidity — and the announcement gives leeway on this.
The regulator also said that some insurers would be allowed to surpass the 30 per cent cap on investments in equity markets in a move intended to support stock prices.
While Chinese officials have said coronavirus infections could peak within a week, other experts outside China say that point could come as late as April or May.
During Sars, China experienced a two-month sell-off that caused the market to drop about 10 per cent, according to research from Maybank. Singapore and Hong Kong markets suffered similarly.
“Markets, in particular, Hong Kong and China equity markets, could be very volatile in the near term as markets anticipate a broader community outbreak to occur in coming months,” Prashant Bhayani, BNP Paribas Wealth Management’s Asia chief investment officer, said in a note. “Beijing is very likely to step up in policy easing when there are signs that the outbreak becomes a headwind to economic growth.”
