By Giles Coghlan, Chief Currency Analyst at HYCM
The Chinese open was always going to be bad with all the stored up coronavirus fears released in one go after the extended Lunar New Year holiday. The open was as bad as feared, if not slightly worse, with the Shanghai Comp opening down more than -8.0% at the start of the week and the CSI300 down more than -9.1%. This was the worst opening in nearly 13 years.
This price drop was a 3+ standard deviation and took valuations back to 12 months lows. Statisticians put this kind of event in the ‘outlier’ section. The attraction of a day like yesterday is that for investors who are bullish on China’s outlooks this does offer a tempting entry point. The Shanghai Composite was trading yesterday at 9.7 times projected full-year earning which is just over half the ration for the S&P 500.
The PBOC is actively supporting the Chinese economy and a number of large, longer-term investors will be drawn off the sidelines to these bargain prices. Of course, whether it is a bargain or not turns on the further outbreak/containment on the coronavirus.
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