China says A-share market has gradually digested epidemic risk

VCG

The impact of the epidemic on the A-share market has gradually been digested,said Li Chao, vice chairman of China Securities Regulatory Commission at a press conference on Sunday.

Global stock markets have suffered devastating declines over past weeks due to fears caused by the wide-spreading coronavirus outbreak. U.S. stocks plunged, with the SP 500 triggering a circuit breaker for a record four times in just 10 days.

Undoubtedly, China's financial market also took a hit from the epidemic. But compared to the overseas markets, China's A-share market had relatively small volatility. Some even questioned whether A-share market would become a safe haven under the current circumstances.

Explaining why China has managed to maintain relativestability, Li attributed this to a low level of valuation and abundant liquidity of the A-share market.

"From the perspective of the internal structure of the A-share market, the valuation of the A-share market is still relatively low. The price-earnings ratio (P/E) ratio of the Shanghai Composite Index is no more than 12 times, and the P/E ratio of the SSE 50 is even lower, less than 9 times...At the same time, the liquidity of our market is relatively abundant, and the risk of the A-share market is relatively low."

Additionally, the macro-environment facing the A-share market is different as China's epidemic prevention and control is currently at a different stage from overseas, Li added.

"The impact of the epidemic on the A-share market has been gradually digested, and the resumption of production is also accelerating. In a quick survey we did in early March, 2,700 listed companies have resumed work exceeding 98 percent...For small and medium enterprises, the resumption of work is more than 80 percent. From these data, we can see some very positive signals.

"The effectiveness of previous actions to stable the financial system is pronounced," said Chen Yulu, deputy government of China's central bank, adding that the overall operation of China's domestic financial system is stable, the financial industry and the service industry are growing rapidly, and the national economy is recovering steadily.

"China's economy is stable overall and the fundamentals of China's long-term positive economy have not changed, with real economic activities have gradually improved", said Chen.

Central banks worldwide have rolled out economic support packages over the past weeks, in an effort to help mitigate the growing fluctuation in the global financial markets under the impact of the coronavirus outbreak.

In China, the central bank has rolled out powerful easing measures since the coronavirus outbreak, including injecting 100 billion yuan (about 14.33 billion U.S. dollars) into the financial system via medium-term lending facility. Additionally, the PBOC

freed up 550 billion yuan by cutting the reserve requirement ratio

effective on March 18.

Combined with previous supportive policies and the fact that the virus situation has gradually stabilized in the Chinese mainland, with no new domestic transmissions reported on Thursday for the first time, the Chinese central bank on Friday announced the one-year loan prime rate, a lending reference rate set monthly by 18 banks, remained.

The U.S. Federal Reserve made another emergency interest rates cut to zero on March 15, trying to stay ahead of disruptions and economic slowdown caused by the rapidly spreading coronavirus.

The ECB on Wednesday eveningannounced a massive new bond buying program worth 750 billion euros (820 billion U.S. dollars), in order to stabilize financial markets. Europe's Central Banks followed suit, and introduced quantitative easing into the financial system.