Viewpoint
Date:2020/02/12

In the first trading week of 2020, China’s financial market did not see the haze of the COVID-19 epidemic as we had expected.

Take the A-share market as an example: after the deep sell-off on February 3, 2020, the first trading day since closing for the Spring Festival holiday, stocks kept rebounding greatly. As of February 7, 2020, the Shanghai Composite Index closed at 2875.96 points, a cumulative drop of 3.38% in the whole week; the SZSE Component Index closed at 10611.55 points, a cumulative fall of 0.66% in the whole week; the ChiNext Index rose to a temporary new high of 2015.80 points, a cumulative increase of 4.57% in the whole week.

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Under the “fall-rise pattern” of the stock market, we can see that what is more focused on and discussed in the market is the opportunity brought by this fall, other than the impact posed by the “black swan”. Two figures can illustrate this phenomenon: in the five trading days, the cumulative turnover in the two stock markets of Shanghai and Shenzhen was RMB 4.14 trillion, a new record high in the weekly turnover in the last 10 months; the net inflows of northbound funds in the whole week exceeded RMB 30 billion, indicating that the overseas capital with longer investment horizons has early seen the opportunity and that foreign investors are optimistic about China’s capital market and economy.

A large adjustment was shown in the RMB exchange rate, which was expected by the market. Later, the RMB exchange rate fell less sharply and fluctuated around “7”, and cross-border capital flows and the foreign exchange supply and demand remained basically stable. All these show that China’s financial market becomes more resilient and gradually matured.

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What makes China’s strong resilience with which the financial market has successfully coped with the opening challenge by this epidemic?

First, the short-term impact from the epidemic will not alter the long-term positive trend of China’s economic fundamentals, which have strongly supported the prudent operation of the financial market. Judging from past experience, the impact the epidemic poses on the economy will be temporary and short-lived. After short-term fluctuations, the economy will rebound and tend to stabilize again. Back to 2003, the outbreak of SARS disrupted the economic growth in the second quarter, and the third quarter saw a rapid rally. Therefore, after this COVID-19 is contained, China’s economy will quickly rebound, and with the release of consumption and investment needs postponed earlier on, China’s economy will enjoy a compensatory recovery.

Compared with 2003, China’s economy is now transitioning from a phase of rapid growth to a stage of high-quality development, and we are in a new era with the vigorous development of diversified consumption, the transformation and upgrading of traditional industries, and the rise of the new-generation digital economy. Under such background, the resilience and potential in economic growth have become increasingly prominent. Meanwhile, China has sufficient room for macro-control policies. Government departments have issued a series of policies on tax and fee reductions and financial support to mainly help the companies participating in the epidemic control to pull through. Later, China will also maintain policy options and strengthen countercyclical adjustments to ensure the steady and healthy development of the national economy.

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Second, at such a special and sensitive time, without the support and guarantee from the regulatory authorities, all participants in the market cannot make stable market expectations. First of all, instead of being postponed due to the epidemic, the financial market was opened on schedule, which avoided the accumulation of panic and reflected decision-makers’ respect for market rules and confidence in overcoming the crisis. Then, financial management departments coordinated their work for synergies.

China’s central bank massively injected RMB 1.7 trillion of liquidity, the China Banking and Insurance Regulatory Commission actively guided banks and insurance institutions in proactively supporting the development of direct financing and maintaining the stability of the financial market, and the CSRC made arrangements in flexibly and properly adjusting corporate information disclosure and other regulatory matters and allowing enterprises to apply for extensions for their stock pledge agreements mature in the epidemic control period. Such measures are special policy provisions made for the special time in line with market laws. They reflect the regulatory flexibility, effectively relieve the irrational sentiment in the market, and manifest the regulators’ gradually increasing adeptness in expectation management and crisis response. China also has adequate policy option instruments. For instance, in the foreign exchange market, the gradually refined macro-prudential management framework for cross-border capital flows can avoid the procyclical behaviors or “Herd Effect”.

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Third, a market fluctuation itself is also a process of self-healing, self-regulation and risk release. The stock market is a “barometer” of the economy. A certain impact on the economy will inevitably cause a market fluctuation in the market, which is within market expectations. However, such a fluctuation and impact are for the short term. They will not change the medium and long-term trends, nor the investment value of excellent companies. On February 3, 2020, both the Shanghai Composite Index and SZSE Component Index tumbled by more than 7%, which was a typical market fluctuation led by a “crisis event”. Through this fluctuation, market risks were basically released in one step. Then, the stock market rebounded and tended to stabilize, with rational market sentiment returned. This is an important manifestation of the increasingly mature capital market, and the pricing logic of the market is returning to the track before the epidemic, value investing. Just as a professional working on public offering of funds said, “Sometimes, it is undoubtedly hard to specifically predict the market in the coming year, and it is often in vain to look back afterwards; however, the outlook for the next ten years is relatively clear instead.” In recent years, the A-share market have seen sustained optimization in the investor structure, and funds from banks’ wealth management subsidiaries, insurance capital, private equity, and pension funds have gradually become the guiding force of rational investing in China’s capital market. In the eyes of these true trend traders and long-term and value investors, the decline caused by the short-term impact from the epidemic is just a “golden dip”, and perhaps, the key inflection point to grasp potential investment opportunities for wealth growth.

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Fourth, the strong resilience that China’s financial market showed at the critical moment under the epidemic has prominently proved the correctness and foresight of the reform and opening up measures early taken in the financial market. For instance, in recent years, through the market-oriented reform of the exchange rate formation mechanism in the foreign exchange market, the exchange rate has been increasingly flexible, so that it can better absorb internal and external impacts and stabilize the internal and external economic balance. In the past few years, the entities in China’s foreign exchange market have become gradually mature, with growing adaptability to market fluctuations and awareness in hedging of exchange rate risk and in financial neutrality. All these have laid a solid foundation for the foreign exchange market to remain stable as expected under this epidemic. In the face of the crisis, we fear nothing and cope with it calmly. That has also made us more determined and confident to further promote and deepen the market-oriented reform and opening up.

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SENDKING Viewpoint

Currently, China’s economy has great potential and sufficient resilience. That is not only a strong guarantee for epidemic containment, but also a solid foundation for China to maintain the long-term economic growth trajectory. The national epidemic control comes to a critical stage. Governments at all levels have simultaneously issued supportive measures, and all social sectors of society are striving to lessen the impact from the epidemic on the economic and social operation.

In the face of the sudden outbreak, SendKing actively responded to the government’s deployments, formulated the capital service plan for epidemic prevention and control, and carried out simultaneous online and offline operations to keep providing excellent and efficient capital services for clients in the special time and to protect their rights and interests all the time. In the meantime, SendKing will continue focusing on the R&D and innovation of financial products, closely follow up the development of new industries and business types, and expand new business space to facilitate the high-quality development of the real economy. While supporting economic development, SendKing will also create its own core competitive advantages.

As an excellent private-owned financial enterprise, SendKing has not only donated funds to support the epidemic containment in Hubei, but also quickly formulated and launched various preferential policies to maximally safeguard the interests of clients nationwide. Meanwhile, with its integrated strength of financial technology, SendKing is actively pushing ahead with the epidemic containment and daily capital services. We have shouldered the due social responsibilities and provided clients with more security assurance. For both China and the Chinese financial market under the impact of the epidemic, we have reasons to keep confident, adhere to our original missions, and work together to greet the spring that will arrive as expected.

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