It is interesting to observe that, while Western risk markets fell flat on their faces on Monday and overnight, China’s markets have been stubbornly resilient. The CSI 300 index dropped by almost nothing on Monday, and after an early plunge yesterday in the wake of the overnight bloodbath rallied back hard and managed to even close in the green. To be fair, China’s doomsday already happened end of January when the index got coronaed and lost 15% from this year’s highs, but it has since caught up an equal 15% in performance.
Better still, some of the Chinese bellwether stocks had a stellar run yesterday, with Tencent closing up a whopping 3% in HK, Alibaba unchanged overnight, and the likes of Luckin Coffee, a Starbucks equivalent, rallying 3.5%. So, where is this corona-induced meltdown? Not exactly in China, I guess. And as long as the virus problem was located there, markets in the West didn’t seem to care much. Only now that Italy has somehow been manoeuvred into the spotlight the hysteria has reached European and American markets.
To be sure, despite the slew of expert opinions there is admittedly no way to predict which direction this epidemic will take, and we may still have seen nothing yet with regards to supply chain disruptions, a fall-off in consumption etc. It cannot be excluded that at one worst-case-scenario point all hell may break loose and we will find global stock markets much lower in the wake of a true panic move down. But there must be a reason why Western and Chinese index performances are diverging as they do.
A few readers from America picked up on the last sentence of yesterday’s
piece when I mused who one would rather bet on to get a grip on the outbreak, implying that in an epidemic China’s system had its advantages and is superior to their liberal counterparts. “Ballsy statement…”, I think one of the comments was. Well, I get it. From America’s perspective, and against the background of heavily propagandised criticism of China’s system there, how can one dare to make such a statement?
The West is scoffing at everything that is Chinese, from the state-sponsored economic model to the surveillance state monitoring and controlling its citizens. It understandably offends its liberal values. But decry it or not, if it isn’t the formula to fight an epidemic and have a chance to beat it, I don’t know what is. You can’t simply put entire cities with a population in the millions on lock-down in places like Europe. The spread of Italy’s corona cases is a testament to it, and Italy is not even on the move and celebrating anything like Chinese New Year.
Investors are all for values I am sure, but when it comes down to the perceived efficacy of government action, they will reward markets that reflect such controlling measures. That is a key reason for China’s equity markets to have remained stable while the West has responded by way of a panic sell-off. As I said yesterday, saner minds would also have taken note of the quick moderation in the gold price and more typical behaviour of the Yen safe haven, inducing reassurance that the world isn’t about to fall apart.
Having said all this, the proof is as always and in the pudding, and we will see how the Chinese indices will react to the second overnight dump when they open in an hour or so…
