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Markets · Equity
China's equity market holds steady amid sharp swings on Wall Street, value stocks surface out of epidemic
2020/03/11 05:26:48

Mar 11, 2020 (China Knowledge) - Last night U.S. stocks rebounded at 5% level on the back of Monday’s Wall Street’s plunge of over 7% that triggered the circuit breaker to stop the New York Stock Exchange to halt all trading for 15 minutes. With all three major indexes closing up nearly 5%, the bell weather Dow Jones Index (DJI) closed up more than 1,160 points, or back above its 25,000 points psychological level. The S&P 500 Index closed up 4.94%, the biggest one-day gain since Dec 2018.

In the futures market, a more exciting scene has occurred. After Monday's meltdown, S&P 500 futures briefly touched the upper limit of price gains at 2,879 points yesterday, again triggering trading limits.

Such sharp fluctuations in U.S stocks recently have some market participants believe that the Federal Reserve (Fed) has gradually lost its influence on the market, and its operation only aggravates the risk of the global recession. Specifically speaking this has resulted three new phenomenon of Fed – losing its independence.  

First, the timing of the Fed's rate cuts last year and this year came after President Trump's high-profile attacks on the Fed, raising questions about the federal reserve's long-declared independence.

Second, after Trump became the President, he regarded the U.S stock market as one of his important achievements and could not tolerate the decline or even normal adjustment.

Lastly, although the Fed's intraday rate cut came after the G7 meeting, the timing was so close that it is hard not to doubt that the Fed had already decided to cut rates before the G7 meeting.

So, can China become a safer haven for the asset when U.S stocks fluctuate wildly from such abrupt cuts, and under the influence of President Trump? 

In the current global financial markets under the context of increased connectivity, the spread of risk aversion in overseas markets and the global stock market have fallen for several days; but, on the contrary, the A-shares still maintain a pattern of small fluctuations.

Though an early and largest victim of the epidemic COVID-19, the strength of the Chinese currency Renminbi against others has held up well and resilience the worse situation at the earlier stage of widespread of the epidemic. On the whole China's financial markets have maintained relative stable in the current highly uncertain global investment climate. Renminbi assets are becoming a safe haven in global markets.

The most obvious figure is the country’s equity market performance over a 30-days period.

When global equity indices are compared on a 30-days period, since the outbreak of the epidemic in early Feb, China’s 3 main stock indexes outperformed and hold down the rest – which includes the U.S., Japan, Germany, U.K, and France. Chinese equity market stays in positive territory but negative double-digits for all major indexes.

Furthermore, in terms of valuation, the average PE ratio of China’s A-shares hovers at reasonably 13 times, which is at a historical low level, in contrast, U.S stocks’ valuation that is already too high. So, it is not difficult to apply the basic metrics to bargain-hunt value stocks.

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