China Stocks gains as government lifts quarantines, aiming for a return to work

Mainland China equity market finished session higher on Friday, 20 March 2020, as investors chased for bottom fishing after central banks and governments around the world unleashed a torrent of stimulus measures designed to cushion the shock from coronavirus. Meanwhile, buying momentum spirited after reports that government is removing barriers to the movement of people and goods in much of the country after announcing that new cases of local coronavirus transmissions had fallen to zero. At closing bell, the benchmark Shanghai Composite Index advanced 1.61%, or 43.39 points, to 2,745.62. The Shenzhen Composite Index, which tracks stocks on China's second exchange, added 1.28%, or 21.53 points, to 1,704.46. The blue-chip CSI300 index inclined 1.79%, or 64.13 points, to 3,653.22.

Mainland China stocks closed with gains after central banks around the world including the US Federal Reserve, European Central Bank and the Bank of England announced huge new injections of funds into financial markets to support credit markets and the economy. They've been backed by governments, which have committed trillions of dollars worth of new spending and credit guarantees to help support their economies.

 

The New York Federal Reserve continued its effort to create liquidity in the strained financial markets by announcing it would purchase another $10 billion of mortgage-backed securities, part of a larger package of $200 billion in mortgage bonds the Fed promised on Sunday to buy as it relaunched quantitative easing. The US central bank has also taken steps to ease an acute shortage of dollars that was destabilizing markets. Also on Thursday, the European Central Bank launched a program to inject money into credit markets by purchasing up to 750 billion euros ($820 billion) in bonds. The Bank of England cut its key interest rate to a record low of 0.1%. Australia's central bank also cut its benchmark lending rate to 0.25%. Central banks in Taiwan, Indonesia and the Philippines also cut their benchmark rates. Hopes are rising for progress in finding virus treatments and that a boatload of stimulus by both central banks and governments will put the global economy in position for a U-shaped recovery,

Investors also appeared to be encouraged by reports that China is set to ramp up stimulus spending after the province where the virus emerged in December showed no new infections on Wednesday. As central banks worldwide slash interest rates, though, the People's Bank of China on Friday kept its new benchmark lending rate unchanged on Friday. The one-year Loan Prime Rate remained at 4.05% for March, while the five year rate held steady at 4.75%. That China's central bank left those rates unchanged is a sign that the country's fight against the novel coronavirus pandemic is at a different stage than the rest of the world.

China is removing barriers to the movement of people and goods in much of the country after announcing that new cases of local coronavirus transmissions had fallen to zero. The government will take measures to speed up the return to work for millions of people, including getting rid of mandatory quarantines for workers in parts of the country now considered low-risk, Li Keqiang, China's No. 2 official, said in a statement. China is eager to get the economic engines of the world's second-largest economy up and running again after damaging government data pointed to the possibility that it will face its first economic contraction since 1976.

Earlier this week, the government said it reached a record number of imported cases of the virus, just as local cases in China dropped to zero. Chinese authorities are now focusing on travelers who are arriving from abroad who could potentially start a second wave of cases.Inbound and outbound tourism will continue to be suspended. On Thursday, China's aviation regulator said that airlines were asked to reduce capacity on international flights arriving in China. China's push to return to work comes as governments around the world have begun to announce new policies this week to close businesses and restaurants and keep citizens indoors as they face a steep rise in coronavirus cases.

Meanwhile, developments on the ongoing global coronavirus outbreak continued to be watched, with markets seeing wild moves in recent days as investors continue to weigh the disease's potential economic impact.

CURRENCY NEWS: China's yuan bounced from five-month lows against the dollar on Friday, in spite of China central bank fixed softer mid-point rate, after the U.S. Federal Reserve opened the taps to ease feverish demand for its currency. The yuan was also supported by China central bank decision to defy market expectations and keep a key benchmark lending rate unchanged. The one-year loan prime rate (LPR) CNYLPR1Y=CFXS was left at 4.05% from the previous monthly fixing while the five-year LPR CNYLPR5Y=CFXS stayed at 4.75%.

Prior to market opening on Tuesday, the PBOC set the midpoint rate of the yuan's daily trading band CNY=PBOC at 7.1052 per dollar, weaker by 0.75% from 7.0522 set previous day. In the offshore market, the yuan CNH=D3 strengthened as much as 0.86% in morning trade to 7.0953 per dollar.

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