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PBOC & Fed Stimulus Fail To Calm Markets, China Helps World Fight Virus

Key News

Asian markets were a sea of red Monday as they failed to follow Wall Street in its rebound on Friday. Shanghai and Shenzhen lost -3.40 and -5.33%, respectively, and the Hang Seng was down by -4.03%. Australia was hit the hardest in Asia down by -9.52%, while Japan “led” by falling only -2.46%.

China is feeling secure in the work it has done to contain the virus and is applying its expertise to help the rest of the world. Chinese medical teams, now armed with more experience with the virus than anyone, are being sent to Europe and the Middle East to help with the situation. China has provided Italy with 5 million masks, 150 ventilators, and two extra medical teams. China has also provided Iran with 2.4 million face masks and 120 ventilators and respirators. Foreign Minister Wang Yi has now pledged support for Spain as well, which will go on full lockdown today.

As the WHO noted a few weeks back, China has bought the world, especially the West, time to prepare. While some measures, such as compulsory testing and large-scale quarantining, may be difficult to replicate fully in the West, some similar measures are being taken by governments as well as proactively by individuals. Italy, for example, has already placed nearly 60 million people on a centrally mandated quarantine and New York City closed its public schools over the weekend.

Coronavirus deaths outside of China have now surpassed those inside, as the WSJ noted in an article this morning. Nonetheless, headline industrial production indicates growth missed significantly for the January to February period, -13.5% YoY versus December’s +6.9% YoY. Nominal retail sales also decelerated significantly to -20.5% YoY in January/February from December’s 8.0%. However, online retail sales saw a slight increase of +3% YoY growth for the period. As we have been saying, online retailers have largely picked up the slack from brick-and-mortar to provide daily necessities to those that have been stuck at home.

H-Share Update

The Hang Seng lost -4.03% overnight following disappointing industrial and retail sales results for the January-February period. The fed rate cut also seemingly spooked markets in Hong Kong as it occurred right around the market’s open last night. The Hang Seng Index continued to lose ground through to the close. In sector moves, health care stocks within the MSCI China All Shares Index lost -1.26% , consumer staples -1.58%, however consumer discretionary outperformed gaining +0.75%, highlighting the strength of E-Commerce in the face of the virus. The Hong Kong stocks within the MSCI China All Shares Index outperformed the Mainland stocks by a wide margin.

A-Share Update

Mainland markets opened higher in the morning and lost ground as the trading session progressed. The Shanghai and Shenzhen both closed down by -3.40 and -5.33%, respectively. Both the fed and PBOC cut interest rates and both failed to calm markets. The PBOC also cut its reserve requirement ratio for certain banks by 1% following the Fed’s cut to reserve requirements. An ongoing trend in China has been the PBOC’s ability to selectively prop up companies and sectors that are most in need, a strategy that may prove difficult to replicate elsewhere. Pharma stocks have been leading gains of late as coronavirus cases surge worldwide and the market expects China’s pharma companies to have the upper hand thanks to more data on and experience with the virus. Meanwhile, 5G names are under pressure following a US investigation.

Last Night’s Prices & Yields

  • CNY/USD 6.99 versus 7.02 on Friday
  • CNY/EUR 7.77 versus 7.83 on Friday
  • Yield on 1-Day Government Bond 1.43% versus 1.57% on Friday
  • Yield on 10-Year Government Bond 2.68% versus 2.64% on Friday
  • Yield on 10-Year China Development Bank Bond 3.12% versus 3.08% on Friday