Deadly virus stalks financial markets: Fears for Chinese economy

Deadly virus stalks financial markets: Fears for Chinese economy spook nervous investors

British savers exposed to China’s stock market are set for a rocky ride as the spread of the deadly coronavirus rattles financial markets around the world.

On the first day of trading in Shanghai and Shenzhen after the extended public holiday over the Lunar New Year, £275billion was wiped off the value of China’s listed companies.

The CSI 300 index, which tracks the performance of China’s biggest listed companies, ended the day down 7.9 per cent in its worst session since 2015.

On the first day of trading in Shanghai and Shenzhen after the extended public holiday over the Lunar New Year, £275bn was wiped off the value of China’s listed companies

Hundreds of companies fell by 10 per cent, hitting the limit the Chinese authorities allow before trading is suspended.

Stocks were routed despite China’s central bank pumping £131billion into the financial system in an attempt to cushion the blow.

The Lunar New Year holiday was originally scheduled to end last Friday but was extended by three days to give authorities more time to deal with the crisis. 

Analysts warned of further volatility in the coming days and weeks, depending on how the crisis develops. 

That means British savers with money exposed to China face a rollercoaster ride.

Li-Gang Liu, chief China economist at Citi, said: ‘It is unlikely the economy will experience a quick rebound once the outbreak is under control.’

Oil price slumps on virus fears 

Oil prices slumped as worries grew that the coronavirus outbreak will hit demand in China.

Brent crude, the global benchmark, fell by 2 per cent yesterday to $55.58 – but it has fallen by around 20 per cent over the past month.

The increasing restrictions on flights and internal travel have made traders worried that far less oil will be used in China than expected and will lead to a build-up in supply, which could push prices even lower. 

Oil producers are thought to be planning cuts at meetings today and tomorrow.

A prolonged fall in oil prices means petrol will become cheaper for British drivers – although it takes weeks to filter through to the forecourt.

Russ Mould, investment director at AJ Bell, added: ‘The longer it takes to contain the virus, the more harm is likely to be done to China’s economy, the world’s second biggest, and trade-flows in and out of the country.’

Millions of Britons indirectly own shares in Chinese companies through Asia-focused funds held in their pensions, ISAs or investment accounts. 

For several years they have been hoping to benefit from the superior growth prospects offered by China’s expanding middle class, continued investment in infrastructure and growing focus on cutting-edge technology.

But these savers are braced for further volatility as Chinese officials consider cutting the country’s 2020 economic growth forecast from its current level of around 6pc.

Ping An Insurance Group, one of the largest companies listed in China, saw its shares tumble by 6.9 per cent. 

UK funds such as Aberdeen New Dawn Investment Trust and the Baillie Gifford China Fund hold large stakes in the firm.

And shares in the enormous Industrial And Commercial Bank Of China, which is owned by funds such as the Fidelity China Focus Fund and the Templeton China Fund, slid 5.3 per cent.

Investors fear the coronavirus outbreak, which has led to emergency quarantines being imposed in the city of Wuhan and neighbouring towns, will weigh on China’s economic growth. 

US chains in China, including Apple, McDonald’s and Starbucks, have even temporarily shut stores. Major airlines have cancelled all flights to the country.

Analysts at JP Morgan have axed their expectations for China’s economic growth in the first quarter of this year from 6.3 per cent to 4.9 per cent.

Experts are now worried that the fallout from coronavirus could send ripples across the wider global economy.

Goldman Sachs’ chief economist Jan Hatzius said: ‘The near-term impact is quite large.

‘What happens to 2020 as a whole really depends on how quickly the episode is brought under control.’

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