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The Shanghai stock market that gained nearly 6% last week has managed to add another 5.7% after that report.
The Chinese government is once again using its influence to drive up stock market interests when the state-owned China Securities Journal gave investors a nudge by declaring the “wealth effects of capital markets” and an expectation for a “Healthy Bull Market”. In response to this position, investors have started reacting positively to the news which has sent the major Chinese markets to a new bullish rally. The Shanghai stock market added to its last week gains by growing 5.7% while others such as the Hong Kong stock market saw a 3.8% growth.
While the investor’s reaction keeps gathering momentum as shown in the varying degrees of growth of the stock markets, analysts believe the government-induced spike could last for a while based on similar events in 2015. The future sustenance of the growth rally is however in doubt as the current market sentiment may wear off after a short while. Recognized as a country where COVID-19 broke out, China is relatively performing economically well when compared to other countries.
Outbreak of COVID-19 and Its Impact on Chinese Stock Market
COVID-19 is a highly contagious respiratory disease that was first identified in a meat market in Wuhan China. The disease got exported to other countries where it has infected about 11,579,837. As reporting criteria and testing capacity vary between locations the number shown is the cumulative number of confirmed human cases reported to date. The actual number of infections and cases is likely to be higher than reported. The coronavirus related deaths numbers about 536,814 with 4,773,163 currently active cases.
As the impact of the coronavirus can be seen in the data shown, governments around the world and the United Nations had to enact measures to reduce the rate of spread of the disease. These measures include but are not limited to the closure of borders which halted the global supply chain, national lockdown with a sit at home order in almost every nation, and the practice of social distancing.
In China, these measures brought about the quarantine of Wuhan which has been regarded as one of the largest city quarantines in history. Businesses had a catastrophic downturn and the Chinese economy experienced a massive plunge with a 6.8% contraction. China’s industrial production and retail sales contracted at the sharpest pace in nearly 30 years in the first two months of the year after the coronavirus epidemic dented the economy.
The stock markets also went reeling down with the Hong Kong Stock market seeing a drop of 8.9% per year on year performance in Q1 2020. While Beijing’s response to keep the stock market outlook impressive, the global losses had an unprecedented effect in its markets. Shenzhen and Shanghai markets witnessed general downturns.
Journey to Recovery
China was one of the first hit nations for COVID-19 but remains one of the first to show signs of recovery. Some nations of the world still rely on key production/supplies from China and the easing of the economy has caused a good rebound in key market indices. The stock markets are back on their feet giving a positive outlook when compared to their international counterparts.
Commenting on the Chinese government’s strategy to use the media to drive market growth, Mark Williams, Chief Asia Economist at Capital Economics as reported by CNBC said:
“There’s quite a long history of policy makers using the media to drive up the market. It doesn’t always end very well, we saw that back in 2015, exactly the same statements then. They tried to push the market higher. It worked for a while and then the market collapsed.”
Since the times are different and the polarity of 2020 due to the coronavirus disease brings different uncertainties, the market push by the Chinese media may have a more lasting impact than that seen in 2015.