China Market recovers on govt. string of new measures

Mainland China equity market recovered on Wednesday, 26 February 2020, as investors chased for bottom fishing after China government announced a string of new measures to ease financing for small businesses, amid an epidemic which has been putting massive pressure on the world's second largest economy. However, market gains capped amid lingering concerns about the economic impact of the virus outbreak and its effects on the global economy. Around late afternoon, the benchmark Shanghai Composite Index recovered 0.3%, or 9.16 points, to 3,022.21. The Shenzhen Composite Index, which tracks stocks on China's second exchange, was down 0.8%, or 15.26 points, to 1,927.91. The blue-chip CSI300 index edged up 0.03%, or 0.91 points, to 4,124.91.

China government announced a string of new measures to ease financing for small businesses, amid an epidemic which has been putting massive pressure on the world's second largest economy. China's central bank will increase yuan re-lending and re-discount quotas by 500 billion yuan to help smaller banks increase support to small and medium-sized businesses. China will also increase policy banks' loan quota by 350 billion yuan to make loans targeting private, small and medium enterprises. Banks are being encouraged to delay interest payments for eligible firms, such as small and medium firms and individual businesses experiencing financing difficulties, until June 30. All companies in Hubei province are eligible. Loans to small and agricultural businesses should be lowered by 0.25 percentage point. Small businesses in Hubei should be exempted from paying value-added tax from March until the end of May.

 

However, market gains capped amid lingering fears about a slowdown in global growth caused by the deadly coronavirus. The spreading deadly virus, that has infected more than 80,000 and killed more than 2,700, has sent shock waves through the markets. There has been a recent spike in coronavirus cases outside of China, where the disease was first reported. South Korean authorities have confirmed more than 900 cases within the country's borders. Meanwhile, Italy has been the worst affected country outside of Asia, with more than 200 reported cases. Iran also confirmed at least 12 deaths.

The World Health Organization says the epidemic has peaked in China, but concern that its spread is accelerating in other countries is likely to keep investors on edge.

Adding to recent fears was an alert from the US Centers for Disease Control and Prevention on Tuesday warning Americans to prepare for the spread of coronavirus in the United States, signalling a change in tone for the Atlanta-based US health agency. This follows news on Monday about a spike in cases in other countries in Asia, the Middle East and Europe, outside the virus's epicenter in China. Investors are closely watching reports in Italy, Iran and South Korea.

Some investors had been betting that central banks like the U.S. Federal Reserve would counter any economic weakness resulting from the virus with support such as interest rate cuts. But worries about supply chain disruption curbed this confidence.

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