Bulls Vs Bears On China: Coronavirus, Trade And More

All eyes have been on China for quite some time as various threats play out. For years, the big specter over the Chinese markets has been trade tensions with the U.S. However, more recently, the issue has been the coronavirus, which put much of the Chinese economy on quarantine. So is this the time to be bullish or bearish on China? Bulls and bears place different levels of importance on various impacts to China’s economy.

bulls bears china coronavirus US companies impact

Bulls and bears on China: the coronavirus

Let's start with the elephant in the room. There's no denying that the coronavirus is having an impact on the Chinese economy. However, bulls and bears differ on the severity of the problems it will have on China.

Chinese stocks finally started to decline amid bearish concerns that the damage to the nation's economy could be worse than first expected. However, they initially climbed as investors ignored the dangers and pushed stocks higher instead.

More than 74,000 people have been sickened by the coronavirus, and more than 2,000 people have died from it. The Chinese government has adopted strong measures to stem the spread of the illness, resulting in a near-total shutdown of the economy.

There are signs that the coronavirus is slowing down as the number of new cases is on the decline, but the impacts of the outbreak will likely be felt for quite some time.

PBOC cuts a key interest rate

Chinese officials have also taken steps to prop up the nation's economy during the near shutdown. The People's Bank of China cut the one-year medium-term lending facility rate from 3.25% to 3.15%. The interest rate is the rate at which it lends money to banks.

The central bank had already slashed rates on its short-term reverse repo operations two weeks ago. The latest cut to the medium-term lending rate is the second such reduction in the current easing cycle. It follows a cut of 5 basis points in November.

Capital Economics analysts said in a note dated Feb. 17 that the PBOC didn't explain why it cut the key interest rate. However, they believe the move was aimed at reducing funding costs for banks that have sizable balances with the central bank. They also believe the cut was aimed at encouraging such banks to reduce their lending rates.

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