Coronavirus: has the Chinese stock market bounced back?

Chinese stocks have had a rough ride because of the coronavirus. But how is the Chinese stock market doing now, and what does it mean for the West?

                                

It’s been more than three months since the coronavirus surfaced in Hubei province – and, at long last, the Chinese stock market is starting to show signs of recovery.

Although Chinese stocks have a long way to go, investors have been buoyed by a dramatic slowdown in the spread of COVID-19 on the mainland. Just 63 new cases were identified on 9 April – and crucially, 61 of the patients had come from overseas. This is a far cry from where China was just a few short weeks ago.

There have also been attempts to show that Wuhan, the epicentre of the pandemic, is over the worst. To prove it is open for business (and, by extension, China shares), the city held an extravagant light show to mark the end of a 76-day lockdown.

In this article, we’re going to look at the Chinese stock market today, and ask the question that’s undoubtedly on the lips of investors worldwide: can international exchanges such as the 0'>Dow and the 0'>FTSE bounce back too?

How the Chinese stock market works

Given the sheer size of the country – both in terms of its population and economy – there are two key exchanges where China shares are listed. The largest one by a country mile is the Shanghai stock exchange, and it tracks daily fluctuations in all A and B shares. It’s undeniable that COVID-19 has had an impact on its performance of late: at the time of writing, it’s down 10.63 per cent on where it was a year ago. Financial companies are the bread and butter of this index.

Elsewhere in the China share market, you have the Shenzhen stock exchange. Although it’s considerably smaller, it still has a market capitalization that exceeds major exchanges in Canada, India, Australia and Germany. Curiously, it seems this index has weathered the storm of the coronavirus slightly better, as it’s down just 0.44 per cent compared with this point in April 2019. The overwhelming majority of Chinese stocks on this exchange are in the manufacturing sector, and it’s also home to five times more mining companies than its Shanghai counterpart.

Outside of the mainland, you also have stock exchanges in Hong Kong and Taiwan. Work is ongoing to better integrate the Hang Seng into the Chinese stock market – and this is evidenced by a financial bridge between this index and the one in Shanghai. This is very much a mutually beneficial arrangement that was devised by Chinese President Xi Jinping: the opportunity of China stock investment is now on offer for foreign traders, while often heavily indebted companies benefit from a much-needed cash injection.

Chinese stock market today

So… how are Chinese stocks faring now life appears to be getting back to normal? Well, there has been a fascinating turn of events of late. Back in February, China was comfortably home to the worst-performing indices in the world – a far cry from the United States, where the 0'>Dow Jones Industrial Average was steaming towards all-time highs close to 30,000 points.

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Fast forward a month, and the reality was different. Coronavirus cases had started to proliferate outside of China – namely in Iran, South Korea and Italy – and the reality of the situation was starting to hit home in America. The Dow began to experience unprecedented levels of volatility, plummeting 30.4 per cent over three weeks. Now, in the middle of April, the US has the highest number of COVID-19 cases worldwide – and although the Dow has recovered some of these gains, it’s still 6,000 points off where it was in February. Wall Street giants are warning investors not to get complacent, as analysts fear further declines are inevitable.

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Chinese stocks have had a rough ride in the year to date. The Shanghai composite was holding steady until 22 January, when a 12-day plunge began that would wipe about 10 per cent off its market capitalisation. This date coincides with when all public transport leaving Wuhan was suspended, effectively constituting the start of the lockdown. It did recover back to the level seen before – roughly 3,070 points – before it began to fall sharply again to yearly lows of 2,600 points on 23 March. Elsewhere in the Chinese stock market, the Shenzhen composite followed an almost identical pattern.

What next for the China share market?

The Chinese stock market today is clearly trying to find its feet after one of the worst health crises in living memory – one that has far outstripped the likes of SARS, MERS and Ebola. Even as mainland cities start to achieve a sense of normalcy once again, it’s undoubtable that business is being affected. Crucial air links to the West remain suspended altogether or seriously curtailed. Although China is starting to get well again, the other ends of well-trodden connections in London, New York, Paris and Madrid very much remain in the thick of it.

Do remember that the Chinese stock market, and the wider economy, had plenty of problems to contend with even before COVID-19 came into existence. As reported by Currency.com back in December, small and medium-sized lenders have been crippled by high levels of bad debt – and some banks have even had to be bailed out by Beijing. This is undoubtedly a problem that will be exacerbated as the true impact of the pandemic becomes clearer. Back then, the country’s main problem was a forecast by the IMF that suggested economic growth for 2020 would be 0.3 per cent lower – a still impressive 5.8 per cent.

There are reasons to be optimistic. A high proportion of Chinese stocks are in the manufacturing sector – companies that are a crucial cog in global supply chains for countless industries. Their output is largely returning to normal. Although it’s likely that appetite for non-essential items will be on the wane for some time, it’s possible key constituents on the Chinese stock market will plug the gap as warehouses and factories in other economic hubs worldwide suspend their operations.

For those looking for Chinese stock to invest in, and the top China stock to buy now, it could be worth looking at the tokenized shares on offer from Currency.com. Several companies from Hong Kong are listed, including 0'>Standard Chartered, 0'>Alibaba , 0'>Prada, 0'>Air China and 0'>Tencent.

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Across exchanges worldwide, there are bargains to be had – but it is worth remembering the global economy is far from through this yet. Some medical experts are suggesting that we could see a second wave of coronavirus cases come winter. This could very easily erase any and all gains seen over the summer… and potentially leave market caps in an even worse position than they are now.

FURTHER READING: Stock market forecast for the next five years

FURTHER READING: Which investments are the best during a recession?

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