China’s stock market suffered a limited technical drop so far

Amid growing coronavirus-related fears, fundamental and technical analysis show that Chinese stock markets could still experience a severe drop over the next days or weeks, with more extensive consequences for a number of assets outside of China particularly in technology, fashion and retail industry sectors.

After losing 9.59 percent on February 3, 2020, the Shanghai Stock Exchange (SSE) index rebounded 1.34 percent on February 4, 2020 despite increased likelihood that the Wuhan-bound coronavirus will be declared a pandemic by the World Health Organization (WHO).

The SSE is, nonetheless, navigating through known waters at levels seen not so long ago in February 2019 and August 2019, and the Central Bank of China’s injection of $173 billion into the economy has limited Chinese market’s reopening to a quite limited drop. At 2,783 points, the SSE remains around 42 percent higher than its post-2008 financial crisis bottom at 1,958 points in June 2013.

Growing tit-for-tat interactions between the United States and Chinese governments over the sending – or none – of Center for Disease Control (CDC) experts to the Hubei Province, the epicenter of the coronavirus, may impact the implementation of Trump-Xi’s trade agreement’s phase 1 if not make more difficult the building up of phase 2.

Also, a reliable solution able to contain the spreading of the coronavirus and to heal those affected has yet to be found, meaning that uncertainty and volatility on the Chinese stock market could last for months and accordingly deteriorate global growth perspectives.

Data on 4 February 2020
SSE Composite chart from TradingView.com

The coronavirus has killed hundreds of people till now and Cyceon does wish China and every people affected a speedy recovery.

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