Is China’s stock market becoming a new hedging asset for global funds?
Wall Street, New York, United States. Image credit: Rick Tap/Unsplash
Global stock markets posted their steepest falls since the 2008 financial crisis on March 9, after a crash in the oil price amplified concerns about the escalating economic cost of the coronavirus outbreak.
Coronavirus and oil prices crashing were blamed amid a profound decline in supply and demand. With the sentiment of Brent crude oil futures plunging by more than 20% and European stock markets falling by about 8%, the US S&P index quickly fell below 7%, touching the US stock market meltdown mechanism on Monday, March 9, 2020. Dow Jones and Nasdaq both fell more than 7% and suspended trading for 15 minutes. This is the second time that US stocks have triggered the fusing mechanism since 1987 (the last time was 1997), exceeding the one-day drop in 2008. It should be said that this is another historic moment in the global financial market history.
US President Trump said on Twitter that the breakdown of Saudi Arabia and Russia's negotiations on the reduction of crude oil production and the market’s panic over the “fake news” about the coronavirus have caused financial markets to plummet.
Besides the market and technical factors, with the epidemic spreading around the world, the global industry chain (supply-side) and consumer side (demand-side) are shrinking.
According to Morgan Stanley, China's stock market will become a “hedging asset” under the new coronavirus, which will increase the weight of China‘s stock allocation, and China’s stock market rating will also be changed from hold to buy. Today, the three major A-share indexes staged a V-shaped reversal. The Shanghai Composite Index rose 1.82%, the SZSE Index rose 2.65%, and the GEM Index rose 2.66%.
The Chinese and American stock markets have been linked for a decade. Today’s performance shows that there is no major impact on A shares, and the decoupling of China and the US stock market is possible, according to Huang Yanming, Director of Guotai Junan Research Institute.