China’s stock market plunged Monday under selling pressure accumulated during a prolonged holiday. Investors have been worried by the coronavirus outbreak that’s already taken the lives of more than 360 people. Beijing authorities have responded by pumping well over a trillion yuan into the country’s economy and financial system.
Chinese Stock Market Opens With Sell-Off
Reacting to economic complications stemming from the growing coronavirus outbreak, investors marked the opening of the Chinese stock market with an intensive selling. On Monday, the first day of trading after an extended Lunar New Year break, the majority of shares dropped by the daily limit. The CSI 300 Index fell over 9% during the day before closing at 7.9%, the biggest loss since 2015, Bloomberg reported. Ending the year down 2.8% on Jan. 23, the Shanghai Composite Index has now sank 7.7%.
Crypto markets reacted to the losses with a temporary spike. The price of bitcoin core (BTC) briefly exceeded $9,600, its highest level since October 2019, before losing some of those gains shortly after. Bitcoin cash (BCH) jumped to over $393 following the opening of the Asian markets on Monday morning. At the time of writing, BTC is trading in the $9,200-$9,400 range and the price of BCH hovers around the $380 mark.
The stock market slump came after media reports this weekend revealed that Chinese regulators are taking steps to limit short-selling. According to sources quoted by Reuters, China Securities Regulatory Commission (CSRC) issued a verbal directive to that effect, instructing brokerages to prevent clients from selling borrowed stocks when markets reopen on Feb. 3. The CSRC reportedly suspended securities lending.
The turmoil affected China’s national currency as well and the yuan opened at its weakest level since the beginning of the year, losing more than 1% to around 7 per U.S. dollar. Meanwhile, Beijing accused the United States of instigating fear over the coronavirus outbreak. Chinese Foreign Ministry spokeswoman Hua Chunying stated that with evacuations and travel restrictions, Washington “has unceasingly manufactured and spread panic,” contrary to recommendations of the World Health Organization. Countries should make reasonable, calm and science-based judgements, the diplomat added.
People’s Bank of China Pumps 1.2 Trillion Yuan
Other senior Chinese officials have made similar statements regarding market participants urging investors to be rational and objective when evaluating the consequences of the spreading virus. However, the death toll from the epidemic has reached 361. And the number of fatalities is higher than during the 2003 SARS outbreak. Over 17,000 cases have been registered so far and infections have been confirmed in two dozen other territories, with the first death outside China reported by the Philippines this past Sunday.
As part of efforts to shore up the slowing economy and aid financial markets, Chinese authorities took a number of steps including an interest rate cut for companies based in Hubei province, the epicenter of the epidemic. On Sunday, the People’s Bank of China announced it’s going to spend 1.2 trillion yuan, over $170 billion, to support economic growth which is taking a hit from the deadly virus.
The funds were dedicated to a reverse repurchase operation launched to ensure “reasonable and abundant liquidity” and maintain stability in the currency market, France Presse reported. According to the PBOC, overall liquidity in the banking system should reach 900 billion yuan (approx. $129 billion), which is more than during the same period last year. In 2019, the Chinese economy grew by a record low of 6.1%.