But there are safeguards to prevent problems that were established when the Chinese stock market bubble crashed in 2015. The Chinese government prevented further crashing with a plan, a state-owned finance company bought up several trillion yuan to raise already dropping prices.
There is no indication if China will have another problem with their stock markets. The Shanghai Composite dropped by 8%, and ended at 1.3% better ion Tuesday. Similar gains where the same with Shenzhen stocks.
With the increasing death toll of the coronavirus getting worse, parts of China are not accessible and there are no more flights in or out since the Wuhan outbreak. Companies with factories will be affected in their production.
The market meltdown in 2015 led to a huge downturn, and the Chinese economy was slow. Shanghai stocks had lost part of their value by then.
Saving off an economic downturn, billions were lent to brokerage firms to buy the necessary stocks while the Central Huijin Investment dove into stocks to keep everything afloat.
All these were necessary steps to keep the Chinese stock market floating with an intervention fund. This prompted officials to allay public fears of impending economic collapse. Yet, the market got better, and the Shanghai stock market was restored by February 2016.
The CSF and Central Huijin Investment are the backers national teams to keep the economy afloat and keep stocks stable when needed.
Coronavirus threats are hitting the marker bad and the national teams might be needed once again. The government is ready to step in anytime when needed. Their central bank will lend billions to keep the economy afloat. Short term bonds will be bought to keep the bank lending going despite the problems caused by the epidemic.
These are parallel to the way things went in 2015, and the response is the same with the semi ban or short selling, to prevent sliding prices in the market. Indicators show that short selling was one of the causes of the market crash.
Financial analysts are expecting immediate action of China's response to the tedious situation as the same in 2015. Conservative opinions suggest that using them would be best when the coronavirus epidemic is at its worst. Any sooner, will not be advised commented market analysts.
Whatever China has in reserve might not be substantial, not so much is a general opinion. Continuing coronavirus scares will not be easily determined when it will end, and the effect on markets as well. Losses in the Chinese stock market are not good, adding the uncertainty with the coronavirus that is bound to hit China hard. With short-term selling over, what is next is when the virus fears will end.
In reference to the SARS virus outbreak, this is small to what the coronavirus has done and the uncertainty for China. By this time, with China's economy under lockdown, it might be a different outcome compared to SARS.
