Coronavirus: China could become new investment safe haven as stocks, yuan rally while global markets suffer

China stock market has risen 10 per cent in the last month, while yuan has also gained despite the economic damage from the coronavirus outbreak

Investors may see yuan assets as attractive purchases with coronavirus cases seemingly nearing a peak in China but rising rapidly elsewhere

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China’s equity benchmark, the Shanghai Composite Index, has risen around 10 per cent in the last month despite the impact of the ongoing coronavirus and data that showed the manufacturing and services sectors activity contracted sharply in February. Photo: Reuters

Published: 2:23pm, 5 Mar 2020Updated: 10:45pm, 5 Mar 2020

An ongoing Chinese stock market rally and a yuan exchange rate rebound over the last week have fanned speculation that, as the coronavirus appears to be coming under control, China could become a new safe-haven for investors with other major economies now the ones reeling from the outbreak.

China’s equity benchmark, the Shanghai Composite Index, has risen around 10 per cent in the last month despite new data that showed the manufacturing and services sectors activity contracted sharply in February due to the the impact of the coronavirus outbreak.

The yuan’s exchange rate has also gained 0.73 per cent against the US dollar, pulling back sharply from the key psychological line of 7.00, and making it the second best performing among 11 major Asian currencies.

Michael Metcalfe, global head of macro strategy at State Street Global Market, said that “it is a curious fact that Chinese equities have outperformed global markets, even though Chinese growth, initially at least, seemed certain to take the biggest hit.”

Since trading resumed after the Lunar New Year, China’s stock market attracted 850 billion yuan (US$122 billion) of stock purchases from Hong Kong via the Shanghai and Shenzhen Stock Connect channel in February, up from 506 billion yuan in January and 450 billion yuan in December.

Outstanding Chinese bonds held by foreigners also rose to 1.95 trillion yuan (US$280 billion) in February, from 1.89 trillion in January, and 1.88 trillion yuan in December.

The US dollar and Japanese yen are common safe haven currencies given the size of the countries, their stable political systems as well as their deep trading liquidity, but they have succumbed to selling pressure due to the acceleration in the numbers of their domestic coronavirus infections.

Global equity markets, including the S&P 500 Index in the United States, have suffered sharp drops in the last 10 days [before US markets rebounded Wednesday on news of Joe Biden’s strong showing in the Super Tuesday political primaries], while the US dollar index has slid against a basket of its major trading peers to its lowest level in a month.