China’s financial markets will remain shuttered until Feb. 3 due to coronavirus fears, according to separate announcements from the Shanghai and Shenzhen exchanges.
The move comes as the Wuhan coronavirus outbreak grows in size and severity with many fearing it may lead to a global recession.
The Chinese government may be trying to delay panic selling until it can get the massive outbreak under control. But this strategy is unlikely to work because of the sheer impact the virus is already having on the nation’s economy. Investors can expect to see a large correction in the Chinese indices when (and if) trading resumes next Monday.
The impact of this crisis is sure to bleed into American markets and may trigger a stock market correction.
It’s no secret, the Wuhan Coronavirus is getting worse. So far over 4,000 cases have been confirmed with 106 fatalities. There are over 50 cases outside of China, including five in the United States. Recently, Germany confirmed its first case of the disease bringing the total of infected countries to 16.
In response to the threat, China has quarantined entire cities. The travel restrictions affect a total population of 60 million people and might be slowing economic activity to a halt in the affected areas.
Data from the first day of the Chinese New Year shows a significant decline in travel across all major platforms. There was a 41.6% decline in civil air travel, a 45.5% drop in rail travel and a 25% drop in road travel. U.S-based companies with Chinese subsidiaries are also scaling back their operations.
In response to the crisis, China has decided to extend the Lunar New Year break on trading by four days. This looks to be an attempt to prevent panic selling due to the outbreak. However, the Feb. 3rd date for a resumption of trading may be delayed because Shanghai authorities have separately advised companies not to resume work until at least Feb. 9th.
Despite the halt on trading, Chinese firms are still feeling the pain. The U.S listed China Large-Cap ETF (NYSEARCA:FXI) dropped 4% on Monday.
The United States economy is on shaky footing going into 2020. America’s economy is tightly intertwined with China’s, and a massive crash there would have ripple effects across the world.
Companies with significant exposure to China have already posted significant declines with Apple (NASDAQ:AAPL) and American Airlines (NASDAQ:AAL) down 3% and 8%, respectively.
Chinese airlines are in free fall with U.S-listed China Southern Airlines (NYSE:ZNH) and China Eastern Airlines (NYSE:CEA) both down over 7% on the day.
Investors should also watch for the market fallout over a recent missile strike against the United States’ embassy in Iraq. That situation, along with the ongoing crisis in China, could put pressure on equity prices going forward. With all these black swans hitting the market at once, there’s a growing fear that a major economic downturn is around the corner.
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Last modified: June 12, 2020 10:29 PM UTC