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Managers expect China market volatility

China volatilityChina’s financial markets resumed trading after the Lunar New Year holiday with managers expecting a degree of market volatility.

Early trading saw markets selling off -9% in Shenzhen and -8.7% in Shanghai. “Before the markets opened, Chinese regulators, ministries and local governments announced policy measures to contain the downward impact from the coronavirus on the economy,” said David Chao, global market strategist for Asia Pacific (ex-Japan) at Invesco. “In all, the government announced 30 measures across 5 ministries and regulators to provide economic support,” he added.

A number of provinces in China have halted business activities until February 9, 2020 due to the coronavirus outbreak.

Tai Hui, chief market strategist for Asia at JP Morgan Asset Management is expecting “significant market volatility” in China as it returns from the Lunar New Year holiday.

He said: “In addition to investors’ concerns over the impact on corporate earnings from the Coronavirus outbreak, reduced liquidity in the Chinese onshore markets and local investors’ preference for holding more cash could also exacerbate this correction. Sector selection is also important.

“Retailers, travel & hospitality services are likely to be the most affected. Yet healthcare and online entertainment could potentially outperform as consumers adjust their spending,” added Hui.

In terms of global growth implications, the coronavirus outbreak “will be significant but relatively short-lived,” according to Desmond Soon, head of investment management for Asia (ex-Japan) at Western Asset, a Legg Mason affiliate.

However, the immediate fall-off in short-term global growth momentum is likely to be considerable, given that China is now the world’s second-largest economy and has sizeable trade links with both developed and emerging markets, added Soon.

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