Source ｜ 瞭望 智库 (ID: zhczyj )
Author ｜ 杨杨
This article is reprinted from WeChat public account “National Financial Weekly” (ID: ENNWEEKLY), the original text was first published on February 2, 2020, and the title was “Opening the market soon, don’t panic! “.
Under the influence of the epidemic, A-shares will inevitably be adjusted in the short term, but the long-term trend will not change as a result. Some investors even believe that short-term adjustments are “a good time to buy.”
On Monday, February 3, the Shanghai Stock Exchange and Shenzhen Stock Exchange will usher in the first trading day of the Year of the Rat.
Due to the epidemic, this opening market will be painted with a different color. Shareholders who are behind closed doors or participating in the epidemic are inevitably panicked and panicked: The market will open in the new year. Buy or sell? How will the “black swan” of the new crown pneumonia outbreak affect the direction of A shares?
The short-term trend may not be unexpected.
On the last trading day before the holiday, the market expressed panic about the epidemic with a sharp drop. The Shanghai index fell below 3000 points, and the Shenzhen component index fell 3.52%.
The actual outbreaks since then have been more severe than originally expected. The deep concern caused by this is whether the epidemic will change the overall trend of China’s economy?
The stock market is a barometer of the economy. The impact of the epidemic on the catering, retail, and tourism industries is obvious. If the impact continues, how destructive will the stock market be?
The more definite response the reporter received in the interview was that you don’t have to be too panic.
Affected by this round of epidemic, A shares will inevitably be adjusted in the short term, but the overall trend will not change as a result. Investors who are optimistic about the Chinese medium and long-term stock market even believe that this short-term adjustment is a “good time to buy.”
Recently, the central bank also sent a wave of stabilizers. The central bank’s deputy governor Pan Gongsheng said in an interview with the media: After the financial market opens on February 3, the central bank will provide sufficient liquidity.
“Especially considering the dual effects of the special period of the epidemic and the deferred opening of the market, the People’s Bank of China will provide liquidity to the market through various monetary policy tools such as open market operations, standing borrowing facilities, reloans, and rediscounts.” Pan Gongsheng Say.
1. What will happen when the market opens?
The shock caused by the epidemic has swept the global market.
On January 27, also Monday, the global financial market took the lead in welcoming the first trading day of the Chinese Lunar Year of the Rat, but they greeted them collectively.
On the day, all three major US stock indexes fell more than 1.5%, and Stoxx600, which tracks a large number of European stocks, fell more than 2 percentage points. Concerns caused by the epidemic have led more funds to safe-haven assets, which directly pushed up the prices of US debt, gold and the yen.
Although most Asian stock markets are still closed during the Spring Festival holiday on this day, the Nikkei 225 Index also lost 2.03% on the day. Two days later, on January 29, when the Hong Kong stock market opened, the Hang Seng Index fell more than 3%.
But all this is expected.
Li Feng, deputy dean of China Finance Research Institute of Shanghai Jiaotong University and co-director of Shanghai Gaojin Financial Research Institute, said that after the “black swan” incident, capital markets will often react violently. Moreover, China’s economy accounts for more than 16% of global GDP, and it is closely integrated with the global economy.
Is the reaction of these overseas markets a portrayal of the opening of the A-share market in the new year?
In general, the impact of the epidemic on the major outbreak markets is generally greater than in other markets. What’s more, the development of this epidemic has exceeded previous imagination. Will the panic in the market increase?
During the SARS period, the most severe damage was in the catering and tourism industry
History is a wheel and a mirror. The same doubts and the resulting market panic will basically appear in every major public health event in history.
If you take history as a mirror, then from the final result, these events will not have a long impact on the capital market, and a rebound will occur after the epidemic peak.
The 2003 SARS incident is the most suitable comparison to this new crown pneumonia epidemic. The A-shares 17 years ago had a major adjustment only in mid-to-late April 2003, but soon stopped rising.
The epidemic was in the last few trading days before the festival, and the market response was surprisingly similar to 17 years ago.
Not only did the broad market index fall, but the stock prices of leading market players in the aviation, airport, hotel and leisure sectors also sharply retreated. In contrast, it is the pursuit of funds in the medical sector. On January 20 and 21, the A-share medical index rose by 1.9%.
This has become the market’s usual response to the impact of the epidemic. During the SARS-caused market decline in 2003, the pharmaceutical and biological industries also performed well, and the most affected industries were also the catering and tourism, transportation and other industries.
The institutions and investors interviewed by reporters generally believe that the epidemic will have a negative impact on A shares in the future.
CICC believes that if SARS is used as a reference, the A-share market may still have 4 to 5% correction room under the influence of this round of epidemic. Consider the impact of large public health events on the stock market in the past 20 years. The continuous decline usually lasts for a week or two.
2. The big trend is unchanged
Not without a different voice. If the epidemic weighs on China’s economic performance throughout the year, how can the capital market stand alone?
This kind of worry comes from the fact that the epidemic has already caused a big impact on social consumption.
Take the movie as an example, the national box office income of the first day of the year of the mouse was only 1.81 million yuan, compared with 1.458 billion yuan in the same period in 2019. Consumption is of great significance to China’s economy. The contribution rate of consumption to GDP in 2019 is 57.8%, which is about 20 percentage points higher than in 2003.
The same logic applies to the tertiary industry. The service industry is a provider of consumer services, and its contribution to China’s total economic volume is not what it used to be. It accounted for more than 50% in 2019, an increase of 12 percentage points from 2003. If the SARS experience is taken into consideration, the tertiary industry is not only the most affected by the epidemic, but it is also the most difficult to stabilize and recover.
During the SARS period, the tertiary industry has the longest impact cycle and the slowest recovery.
The rating agency Standard & Poor’s has recently conducted a preliminary assessment and believes that the outbreak will reduce China’s GDP by 1.2 percentage points.
What’s the actual impact? This is still a difficult question to answer. However, “optimism” is a more mainstream attitude, and more people think that the epidemic has no fundamental impact on China’s economy.
On February 1, five departments including the People’s Bank of China jointly issued the “Notice on Further Strengthening Financial Support for Prevention and Control of Pneumonia of New Coronavirus Infection” and introduced 30 measures. The People’s Bank of China stated that the impact of the epidemic on China’s economy was temporary, and the fundamentals of China’s long-term positive and high-quality growth remained unchanged.
UBS Securities is also a representative of this view. “Our strategic outlook for the Chinese stock market has not changed as a result.” They also did not adjust their investment portfolios.
The optimists believe that the epidemic is likely to affect only the economic performance in the first quarter of this year, and the longer-term impact “will be offset by stimulus policies.” As in 2003, SARS caused a 2% drop in GDP growth in the second quarter of the year, but its impact was gradually flattened in the second half of the year.