The main stock markets in China, Shanghai and Shenzhen, opened this morning after the New Year holiday. This was the first chance for mainland investors to express their opinions about domestic developments with the new coronavirus.
Both markets fell about 8%. These are not markets I watch carefully, so all I really know is the headline number. I’ve read, however, that about 3/4 of the stocks traded on these exchanges were “limit down.” Like commodities markets in the US, authorities impose a daily maximum allowable price fluctuation. In the case of China, it’s +/- 10%. Limit down means that stocks spent part of the day–and closed–with sell orders at down 10% but no buyers at that price.
In other words, the 8% fall understates the concern in those markets. On the other hand, much of the market volume comes, as I understand it, from retail investors on margin–the ultimate “dumb money” worldwide. In most markets, and particularly in retail-driven Wild West-like ones in particular, broker selling to meet margin calls has no finesse at all. Holdings are simply dumped into the market (a cynical mind like mine thinks brokers short the market in their own accounts at the same time). I think this is what’s happening here. So the fall shows the immaturity of these markets as well as investor fear.
Daily trading limits were a feature of many stock markets around the world until the large (the first one triggered by derivatives) global selloff in 1987. Back then, it took the markets with daily trading brackets at least twice the time to stabilize as ones without collars. In fact, some only began to heal (Spain, Thailand come to mind) as the daily limits were removed.
What I think is more significant as a read on Asian sentiment is that the Hong Kong stock market was up on the day.