March 13, 2020 / 9:18 AM / 2 months ago

UPDATE 3-As coronavirus spooks global markets, China shares trim losses, yuan strengthens

* SSEC -1.2%, CSI300 -1.4%; HSI -1.1%, worst week since 2018

* Yuan rebounds, eyes on global policy response - dealer

* Government bond futures fall amid flight to liquidity (Adds closing prices for Hong Kong stocks in paragraph 4, onshore yuan in paragraph 13, Chinese Treasury futures in paragraph 18)

By Andrew Galbraith and Winni Zhou

SHANGHAI, March 13 (Reuters) - Chinese shares and government bond futures fell on Friday, tracking global markets downwards after a meltdown triggered by intensifying fears over the spread of coronavirus around the world.

But equities’ losses were muted compared with other markets, checked by hopes that the virus outbreak was under control in China itself, and on expectations of further fiscal policy easing by Beijing to underpin the world’s second-largest economy.

The benchmark Shanghai Composite Index ended 1.2% lower, while the CSI300 shed 1.4%, after having dropped as much as 4.2% and 4.7%, respectively. For the week, SSEC was down 4.8%, while CSI300 dropped 5.9%, versus a 16.5% in the S&P500 index.

In Hong Kong, the Hang Seng Index plunged at the open into a bear market. The benchmark clawed back losses to close down 1.1%, though it still suffered the worst week in two years.

Chinese A-shares have fallen less than their global counterparts in recent weeks as the spread of the coronavirus has slowed domestically and many factories have resumed work after lengthy virus-related stoppages.

In a sign that regulators were closely monitoring the market, the China Securities Investor Protection Fund Corp, directly supervised by China’s securities watchdog, ran a poll on Friday seeking investors’ views on why the A-share market slumped in early morning trade, and whether it will continue to be impacted by overseas markets.

China assets are stronger than assets in other markets, said Zhang Gang, an analyst with Central China Securities, as the coronavirus outbreak has been quickly brought under control in the country, while it has just begun to spread overseas.

Expectations are running high for cuts in reserve requirement ratios (RRR) and interest rate, even though Beijing has already taken a raft of measures to underpin the economy, Zhang said.

Wuhan, the capital of Hubei province and ground zero of the new coronavirus outbreak, reported just five new cases on Friday, while no locally transmitted infections were reported in the rest of the country.

The virus is now spreading in many of China’s trading partners, however, threatening to shock global business and consumer spending directly and through increasingly volatile financial markets.

“The epidemic has been well contained in China. Also, liquidity has been ample in China,” said Zhaopeng Xing, markets economist at ANZ in Shanghai. “China’s policymakers also acted earlier than other countries, hence we have less volatility than other markets.”

In the currency market, the yuan reversed earlier losses to rise 0.51% against the dollar.

The People’s Bank of China set its daily fixing for the yuan’s trading band at 7.0033 per dollar, 0.56% weaker than the previous fix of 6.9641. It was the biggest one-day weakening in percentage terms since Feb. 4, and much weaker than market expectations.

The onshore yuan finished the domestic session at 6.9926 per dollar, the weakest close since Feb. 27. It was down 0.84% from the previous week, its worst week in five.

Traders said investors continued with rangebound trading strategies, but with levels moving downward. Two traders said they saw many market participants selling dollars when the spot rate approached 7.04 to trim the losses in the yuan.

A chief dealer at a Chinese bank said the yuan’s short-term outlook will depend on major economies’ policy direction. A growing number of countries and central banks are announcing emergency fiscal and policy support measures to cope with the pandemic.

“Most central bank policy measures should be confirmed this week and next,” he said.

Some analysts expect another cut to China’s benchmark lending rate (LPR) next Friday, following various easing measures taken since late January.

Chinese 10-year government bond futures lost their early composure and gave into selling pressure as market ructions spooked traders. The most-traded contract, for June delivery closed down 0.48%.

“There are huge doubts about the ability of Europe and the U.S. to control the outbreak, and a flight to liquidity has dragged all assets lower,” said a senior trader at a brokerage in Shanghai. (Additional reporting by Noah Sin in Hong Kong, Samuel Shen and Luoyan Liu in Shanghai; Editing by Kenneth Maxwell and Christian Schmollinger)

Nuestros Estándares:Los principios Thomson Reuters
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