China Will Spend Big to Offset Economic Damage from Corona Virus

February 3, 2020
309 Views

The Corona Virus that originated in Wuhan, China has now infected more than 17,000 people worldwide. With symptoms that can range from flu-like to life-threatening, it has become a major public health concern. The World Health Organization now categorizes the situation as a global health emergency.

As China works to contain the virus and treat those who are infected, it is also taking steps to cushion the economy.

Chinese Markets Reopened Today

Stock markets in China were closed over the last week, with the Beijing government extending the Chinese New Year Holiday while virus containment measures were underway. The markets reopened today and the results weren’t promising.

The Shanghai Composite, a major Asian benchmark, fell 8% during trading. $420 billion was wiped from China’s stock market, despite the government promising to intervene with economic relief.

That relief will come in the form of $173 billion of capital invested in the financial markets. Exactly how the government would invest is unknown, with the People’s Bank of China offering limited information. It did say that stock losses were irrational and that they had been triggered by herd behavior.

However, some analysts believe that the damage will be long-lasting. Iris Pang, an economist at financial firm ING, said that the damage to the economy would be widespread, with factory workers being unable to attend work in major cities. The analyst said that “It’s uncertain whether factory workers, or how many of them, will return. We haven’t yet seen corporate earnings since the Corona Virus. Restaurants and retailers may have very little sales.”

Some Chinese cities are on complete lockdown, with travel limited for more than 20 million residents. More than 300 people have so far died from the virus.

American Markets Are Still Strong

Despite some initial shockwaves, American investors have had less of a reaction to the Corona Virus. Earnings season is in full swing and the results are positive so far. Major companies are generating record profits and revenue. Amazon, one of the most valuable companies in the world, revealed that the holiday quarter was its best ever. The chip sector is also performing well, despite much of the manufacturing being based in China.

American investors should follow this news cycle closely, as Chinese stocks can have some influence on international sentiment. For now, the worst of Corona Virus appears to be contained to China, and if there is to be a wider global economic impact, the signs are yet to be seen.

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