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Good morning Hong Kong! Landed from LAX & everyone has a mask & the streets are quiet. Mainland China markets open & commodity futures hit the downside limit. CNH weakens more than CNY. The virus is infecting social activities, from tourism to retail & even industrial activities
The number 8 is a lucky number in China & markets are down about today. Note that this is a lot of pent-up selling demand due to the holidays. The uncertainty is also adding to this knee-jerk reaction. Q: How often does SHCOMP fall >8% since 2001? Answer: 4 times excl today.
Dates that SHCOMP fall >-8%: 27 Feb 2007 by -8.8% 4 June 2007 by -8.3% 27 July 2015 by -8.5% 24 August 2015 by -8.5% & today 3 Feb 2020 by -8.4%
What happens the next day for when markets fell >8%? In 2007, it rell each time but by much less. In 2015, fell the next day & so buying the dip was catching the falling knife. What happens tom? Stocks are re-pricing expectations of earnings & question is whether it overshoots.
Here are the key questions for whether this is a short-term (Q1) or a bit longer lasting: a) When'll the infection peak, as in we need to see a containment soon for social activities to resume; b) Effectiveness of support from the gov' to counter the decline of earnings impact;
While u mull on this (not a virus expert so have no idea when contagion'll peak; China bulls tend to estimate this like next wk & bears'll estimate longer lasting cycle), something to think also: Sectors that can stomach this best & worst in China as earnings fall.
Here is a paper forecasting that it will peak in Wuhan on 20 April 2020 & other cities 1-2 wks later. So we're looking at Q2 not just Q1 if this were true. https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)30260-9/fulltext …pic.twitter.com/AxDvExV0Xy
Btw, Hong Kong economy shrank -1.2% in 2019 & the bad news is that 2020 won't be better given this virus that basically shuts most activities down in Q1 2020 & maybe even Q2 2020...
BTW, US equities futures are up and thats all that matters.
Yes, so we should look at this as 8% down in a week and not in a day.
China A50 futures in Singapore is up 1%, so the fall is actually 1% lower than what was expected. This is bullish!pic.twitter.com/orohWNrECh
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