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Chinese Stocks Face Biggest Flash Crash Since 2015 as Coronavirus Wreaks Havoc

Sam Bourgi
Last Updated September 23, 2020 1:33 PM
  • Chinese stocks crashed 9% on Monday as markets reopened from an extended Lunar New Year holiday.
  • The Shanghai Composite Index is on track for its worst decline since August 2015.
  • The number of confirmed coronavirus infections now exceeds 17,300, with the vast majority of cases in mainland China.

Chinese stock markets reopened Monday from extended vacation only to crash in early morning trade, as the rapidly spreading coronavirus wreaked havoc on investors’ psyche.

Chinese Stocks Plunge

Equity markets throughout mainland China plunged, with the benchmark Shanghai Composite Index reeling as much as 8.7%. The index reached an intraday low of 2,716.70 before recovering slightly. At the time of writing, the index was down 7.4% at 2,755.33.

Shanghai Composite Index, China
The extended vacation in mainland China failed to deter the inevitable selloff as investors braced for coronavirus epidemic. | Chart: Yahoo Finance 

The Shanghai Shenzhen CSI 300 Index crashed by as much as 9.1% on Monday, reaching a low of 3,639.91. It was last seen nursing losses of 7.3%.

With the exception of Hong Kong, equity markets were down throughout the region. Japan’s benchmark Nikkei 225 index fell more than 1%. Australia’s benchmark S&P/ASX 200 Index also dropped more than 1%.

U.S. stocks followed a similar trajectory on Friday, as the major indexes headed for their worst day since the summer. The selloff dragged the Dow Jones Industrial Average and S&P 500 Index into negative territory for 2020.

Coronavirus Epidemic Rattles Markets

Chinese stocks are on pace for their biggest one-day retreat since August 2015  when the People’s Bank of China (PBOC) unexpectedly devalued the yuan currency, pushing global markets into a tailspin [The Wall Street Journal].

Last week, Chinese authorities announced that mainland markets would go on extended holiday to prevent exactly this scenario from transpiring. They correctly predicted that the Wuhan coronavirus outbreak would rattle market sentiment and send investors running.

To shore up confidence, China’s central bank announced  it will inject 1.2 trillion yuan (U.S.$174 billion) into the financial markets on Monday [South China Morning Post]. The emergency liquidity boost failed to inspire investor confidence as the number of coronavirus infections skyrocketed over the weekend.

At the time of writing, there were 17,335 confirmed infections , including 362 deaths [John Hopkins]. Mainland China remains the epicenter of the outbreak, though cases have been reported in more than two-dozen countries including Japan, Thailand, the United States, Australia and Germany.

China coronavirus epidemic
The number of confirmed coronavirus cases has more than doubled in just three days. | Source: John Hopkins CSSE 

The last time the author reported on coronavirus was Thursday when there were more than 8,100 confirmed infections. That figure has more than doubled in just three days. The number of confirmed cases is likely to increase as the time lag between infection and symptom onset closes  [Science Daily].