Chinese Stock Market Expected to Plunge
Korea Exchange announced on Feb. 2 that the first Wuhan coronavirus patient in South Korea was reported on Jan. 20 and the aggregate value of the South Korean stock market dropped by 104,324 billion won from that day to Jan. 31. Specifically, the aggregate market capitalization of the KOSPI market decreased from 1,515.299 trillion won to 1,427.047 trillion won, while that of the KOSDAQ fell by more than 16.7 trillion won.
Under the circumstances, investors are paying keen attention to the Shanghai stock market, which was closed for 10 days from Jan. 23 for the Chinese New Year holidays. South Korean investors’ trading volume in the market amounted to 2.27 trillion won in 2019 alone and the net assets of their public funds investing in China amount to eight trillion won.
Experts’ consensus is that the Chinese stock market will plunge once it opens again and the South Korean stock market is likely to be adversely affected for a while.
Those investing in the funds are gradually withdrawing from the funds with the situation as it is. For the past one month, the average return of the funds was negative 2.56 percent whereas that of overseas stock funds as a whole was negative 0.29 percent. The former funds recorded a capital outflow of 126.9 billion won during the period. ELS investors are nervous, too. Last year, the total ELS issuance linked to the Hong Kong H Index amounted to 51 trillion won.
Another consensus is that the panic will be rather short-lived. “The Shanghai stock market was affected for one month after the outbreak of SARS in 2003,” Korea Investment & Securities explained, adding, “At that time, the index fell 9 percent from mid-April to mid-May and the market was stabilized later.” It also said that the impact of the Wuhan coronavirus on the fundamentals of the South Korean economy would be rather limited, the Chinese government has improved its disease response capabilities, and the People’s Bank of China is likely to supply liquidity in a highly aggressive way.