Did the Fear of COVID-19 Subside? Chinese Fund Returns Recover

Stock Market Rebounds on Expectations of China's Economic Stimulus and Additional Tariff Cuts
173 China Funds Yield 1.2% and Greater China Funds 4.36% Over One Week

[Asia Economy Reporter Song Hwajeong] Despite the ongoing spread of the novel coronavirus infection (Wuhan pneumonia), Chinese fund returns are on the rise. This is analyzed to be driven by expectations for China's economic stimulus measures.

According to financial information company FnGuide on the 11th, the average return of 173 Chinese funds with assets under management of over 1 billion KRW recorded 1.2% over the past week. Although Chinese funds have been sluggish with a -1.6% return since the beginning of the year and -4.0% over the past month, recent returns are showing signs of recovery. As the Chinese stock market revives, Greater China funds are also strong. The average return of 10 Greater China funds over the past week was 4.36%, the highest among major regional and country funds. A month ago, it was -0.08%.

The assets under management, which have consistently recorded negative figures, are also recovering. Since the beginning of the year, 196.8 billion KRW has been withdrawn from Chinese funds, and 171.5 billion KRW was withdrawn over the past month. However, in the past week, only 4.2 billion KRW was withdrawn, and on the previous day alone, 25.2 billion KRW flowed in.

As the Chinese stock market shows continuous strength, it is leading to a recovery in Chinese funds. The Shanghai Composite Index has risen for five consecutive days recently, gaining over 5%. After the Lunar New Year (Chunje) holiday, the Shanghai Composite Index, which had plunged more than 7% reflecting the impact of the novel coronavirus that was not reflected during the holiday, rebounded in just one day and continues its strong performance.

Expectations for China's economic stimulus measures and additional tariff reductions have driven the rebound in the Chinese stock market. The People's Bank of China, the central bank, has supplied a total of 2.6 trillion yuan in liquidity to the market over the past week since the end of the Chunje holiday on the 3rd, raising expectations for economic stimulus. There are also many forecasts that the People's Bank will cut interest rates. Additionally, the Chinese government has decided to reduce corporate electricity rates during the novel coronavirus prevention period for key epidemic prevention enterprises and support loan interest to lower rates to below 1.6%. For companies in transportation, food service, accommodation, and tourism sectors, loss carryforwards will be allowed for up to eight years, and value-added tax exemptions will be applied to income from transportation and life services.

Tariff reductions have also had a positive impact on the stock market. China announced on the 6th that starting from the 14th, it will halve tariffs imposed on $75 billion worth of U.S. imports since September last year. Accordingly, products that were previously subject to a 10% tariff will be reduced to 5%, and those with a 5% tariff will be reduced to 2.5%.

Jeon Jonggyu, a researcher at Samsung Securities, said, "After the National People's Congress (NPC) in March, the Shanghai Composite Index will recover to 3,000?3,250 points," adding, "Considering past learning cases of infectious virus shocks, relative valuation attractiveness, and more aggressive economic stimulus policies than previously expected, the novel coronavirus unexpected variable will become an opportunity for a turnaround."

Jeon added, "The Chinese stock market is positioned in an undervalued area due to the novel coronavirus situation, and the spread of the virus is expected to slow down from mid-February. The Chinese leadership is expected to focus on two things to overcome the political crisis: strong policies to block the spread of the novel coronavirus infection and economic stimulus policies. From mid-February until the NPC is held next month, the Chinese financial market will thoroughly experience the 'government's time.'"

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