The Chinese stock market may no longer remain isolated from the global indices rout sparked by coronavirus which has brought global econonmy on the brink of recession after 12 years. Shanghai Composite Index, China's main benchmark, is heading toward 2,746, a level it last saw on February 3 this year.
Last major slide for the Chinese market came when the index fell to 2,746 or 10.26% from January 22 as the country battled rising number of coronavirus cases.
Before that, the index did not take into account the impact of coronavirus pandemic. In fact, it managed to rise marginally.
On November 29, a month before China reported its first set of coronavirus cases to WHO, its index stood at 2,872.
On December 31, the day when officials reported the coronavirus cases to WHO, Shanghai Composite had risen to 3,050.
This indicates China authorities were deeply investigating or kept the initial cases of infection secret from the market participants too.
By January 22, 17 people in China died due to the virus with 550 cases of infections been reported. On that date, SCE stood at 3,060.
China took several others measures on a war-footing to reduce the effect of virus on its nationals.
But weak sentiment in Chinese market could not prevent SCE from sliding to 2,746 on February 3, a 10.26% fall since January 22.
Now, the market is witnessing a second phase of sell-off . The Chinese market has fallen 9.50% from the peak of 3,071 hit on March 5 to the current 2,779 in just seven trading sessions.
This comes on the back of weak global equities especially the US markets crumbling like a pack of cards as lockdown in various countries threatens to derail global growth.
As anticipated, data for January-February economic activity has come weaker than expectations. Retail sales fell 20.5% from a year ago after shopping malls and other businesses were closed in late January. Factory output declined by a record 13.5% after the Lunar New Year holiday was extended to keep manufacturing employees at home. This has also dampened sentiment in the Chinese stock market.
The second wave of selling in the Chinese market can be attributed to the hit on profits Chinese corporates are seen taking with a slowdown in exports. China is the largest exporter of goods in the world.
The slowdown in business activities across the coronvirus-hit countries will weaken demand for Chinese goods.
However, this was not the case earlier, when Shanghai Composite Index zoomed 10.67% from February 3 to February 21 after China's central bank on February 2 announced injection of 1.2 trillion yuan ($174 billion) worth of liquidity into market through reverse repo operations.
The liquidity injection into stock market fuelled a big rally from the February 3 low and proved effective to calm nerves on the SCE.
SCE rose to 3,039 till February 21 in contrast to US and other markets which had started crumbling anticipating a slowdown in global economy due to the China-born virus.
Dow Jones, the US benchmark index which stood at a peak of 29,551 on February 12 has lost 31.68% since then. Currently, the index stands at 20,188, down 13% or 2,997 points from its previous close. Monday's crash was the worst ever in the history of US market.
S&P 500 tumbled 12% signalling US Fed's liquidity injection measures could not improve investor sentiment. The crash in US markets has led to bulls running for cover across the world including Indian indices.
Sensex which stood at 41,565 on February 12 has lost 11,104 points or 26.71% in more than a month. The slide in world markets comes after COVID-19 virus infection has affected around 1.5 lakh people globally.
The death toll has spiked sharply in Italy which is the worst-affected country by the novel coronavirus after China.
Iran too is affected a lot as the death toll in the country crossed 700, with nearly 14,000 confirmed cases. In India, third coronavirus infected patient died today. Total number of positive cases in India has risen to 124.