Expect Chinese stimulus
Asian stock exchanges were weak in January. Carnegie Asia fell 1.6 % this month.
Asia’s stock exchanges began the year with rising prices after China provided economic stimulus with another cut to bank reserve requirements. Once the threat of escalation in the US-Iran conflict following the US killing of an Iranian general was averted, the market continued upward until mid-January.
There were widespread falls in Asian equity markets when information about a new and highly contagious coronavirus in China was revealed, of about 8% between the peak and the end of the month. This happened to coincide with celebration of the Chinese New Year, so markets in Shanghai and Shenzhen were closed, as were Hong Kong and Taiwan. The industries most affected were airlines, hotels and tourism, as well as companies in consumption and restaurants.
Internet companies like Alibaba, JD.com and Tencent, which have no physical sales, performed better as e-commerce is likely to benefit from the numbers of people at home in quarantine.
Companies in Thailand, Hong Kong and South Korea that are dependent on Chinese demand were also negatively impacted. China has isolated twelve cities with a total of fifty million inhabitants, and flights to many countries are suspended. Package holidays from China to Thailand have been halted by the Chinese authorities, and these make up 70% of all tourist trips from China.
A large proportion of Chinese industry closes over the New Year holidays, and the virus epidemic has extended this by another week for many companies. The effect on the economy as a whole is of course negative, and it is estimated that GDP growth for the first quarter may fall below 5%. Banks may see increased bad debt losses, and to counteract this China is initiating stimulus. The central bank intervened via the bond market to lower borrowing costs, thus increasing liquidity in the banking system to alleviate the short-term negative economic impact.