Wuhan Pneumonia Hits 'Jung Fund' Hard... Returns Plummet

Recent 1-Week Return -4.15%... 50.9 Billion KRW Outflow This Year
Short-Term Adjustment in Chinese Stock Market Inevitable... Hard Landing Risk Relatively Low

[Asia Economy Reporter Koo Eun-mo] As fear of the novel coronavirus infection (Wuhan pneumonia) rapidly spreads, Chinese funds investing in the Chinese stock market are also struggling. Due to the impact of the novel coronavirus, investment sentiment has weakened, making a short-term correction inevitable. However, there is a high possibility that the Chinese government will strengthen various stimulus measures, so the risk of a hard landing is relatively low.

According to FnGuide, a fund rating company, as of the 28th, the recent one-week return of 182 domestic public Chinese equity funds was -4.15%. This loss was relatively larger compared to domestic equity funds (-0.86%) and overseas equity funds (-2.75%) during the same period. Along with poor returns, capital outflows also occurred, with 50.9 billion KRW withdrawn from Chinese equity funds since the beginning of the year.

Looking at individual funds, KB Asset Management's 'KB China Mainland A-Share Leverage Securities Investment Trust (Equity-Derivative Indirect Type)' recorded the largest decline of 7.96%, followed by 'Samsung China Mainland Leverage Securities Investment Trust 1 [Equity-Derivative Indirect Type]' (-7.23%), 'Mirae Asset Index Ro China H Leverage 2.0 Securities Investment Trust (Equity-Derivative Indirect Type)' (-7.13%), 'VI Cheonha Jeil China Mainland Securities Investment Trust H [Equity]' (-5.17%), and 'Macquarie China Bull 1.5x Securities Investment Trust (Equity-Derivative Type)' (-5.10%) among the top decliners.

The Shanghai Composite Index fell 4.5% from its recent high of 3115.57 on the 13th to 2976.53 on the 23rd, the last trading day before the Lunar New Year holiday. The Shanghai Index had continued its upward trend surpassing the 3100 level since the first trade agreement with the U.S. in December last year, but as fear of the novel coronavirus spread, it closed down 2.75% on the 23rd before the market closure. To prevent the spread of the novel coronavirus, the Chinese government extended the Lunar New Year holiday period until February 2nd and postponed the stock market opening from January 31st to February 3rd.

Due to the impact of the novel coronavirus, investment sentiment has weakened, making a short-term correction in the Chinese stock market inevitable, and Chinese funds are not free from this influence. The extended holiday has already caused production declines and consumption contraction due to travel restrictions, which is putting pressure on China's economic growth in the first quarter of this year.

Choi Seol-hwa, a researcher at Korea Investment & Securities, said, "Currently, the transmission power of Wuhan pneumonia is faster than that of Severe Acute Respiratory Syndrome (SARS), and with social activities such as commuting and school openings all postponed, the impact on the real economy is likely to be greater than during SARS." She added, "If the duration is longer than expected, not only consumption but also industrial production and import indicators could all deteriorate."

However, the correction in the Chinese stock market is not expected to be prolonged. Industry experts generally believe that the epidemic issue is not a long-term factor. Kim Sun-young, a researcher at DB Financial Investment, said, "Looking at past cases of SARS and Middle East Respiratory Syndrome (MERS), the epidemic peaked about two months after the outbreak." She predicted, "This situation is also expected to peak by the end of February, so the stock market correction will not be prolonged."

Above all, the possibility of a hard landing is low because the Chinese government is likely to strengthen various stimulus measures as the economy slows. Researcher Kim explained, "Since the beginning of this year, China has been expanding liquidity supply and implementing policies to support funding difficulties for small and medium-sized enterprises and private companies." She added, "Although the reserve requirement ratio has already been lowered, considering the current level and the emergency situation caused by the spread of the novel coronavirus, there is still a possibility of further cuts."

Researcher Choi also analyzed, "Unlike during SARS, China is currently in a monetary easing cycle, so the market is less likely to face corrections due to monetary or fiscal tightening after the novel coronavirus."

This content was produced with the assistance of AI translation services.