Archives of “February 2020” month

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China will limit short-selling on market reopen on Monday

  
  Analysis
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China will not allow short selling on their stock markets when they reopen for trade on Monday 3 February 2020

The information comes via unnamed sources cited at Reuters . saying China’s regulator (China Securities Regulatory Commission (CSRC)) had issued a verbal directive to brokerages to not permit clients selling borrowed stocks.
  • It was not clear if the suspension – which was first reported on Sunday by Chinese media outlet 21st Century Business Herald – would be extended beyond Monday, one of the sources said.
Over the weekend Adam outlined various other stabilisation measures being taken in China:
  • China unveils economic measures in effort to promote calm with markets set to re-open
On the PBOC cash injection, its not as big as it seems:
  • PBOC to inject cash funds today
Its going to be an “interesting” welcome to the new year for financial markets in China today.

HIV drugs show great promise in treating coronavirus patients

  
  Analysis
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Thai doctors tout improvement with HIV and flu drugs

Thai doctors announced that a 71-year-old patient suffering from coronavirus for 10 days showed rapid improvement after being administered a cocktail of HIV and flu drugs.
The doctors decided to use oseltamivir (often sold as tamiflu and was used to treat SARS), as well as lopinavir and ritonavir, two AIDS drugs.
Doctors in China have also been using the combination because of the structural similarities between HIV and coronavirus. It’s a great sign that even if the virus turns into a global pandemic, the repercussions of the outbreak could be much less severe.
Separately, the drug remdesivir — which is not yet approved in the US — was given to Chinese authorities to conduct trials on patients. A US case in New England was also treated with the drug and was said to experience improvement and that “all symptoms have resolved with the exception of his cough, which is decreasing in severity,” according to researchers.

Coronavirus threatens global slowdown: IMF chief

  
Analysis, Economy

The widening coronavirus outbreak is expected to dampen world economic growth at least briefly, the head of the International Monetary Fund warns.

The impact of the disease, “in the short term, is likely to bring some slowdown,” IMF Managing Director Kristalina Georgieva told reporters here Friday. “In the long term, we don’t know. We have to assess how quickly action is being taken to contain the spread of coronavirus and how effective this action is.”

Effects are already manifesting, Georgieva reported. “We see some indirect impacts building up around manufacturing, value chains being impacted by the disruption caused by the virus,” she said. “We see impact on travel and on tourism.”

Severe acute respiratory syndrome ultimately had only a “relatively minor impact” on global growth, Georgieva said. SARS killed 774 people in 29 countries and regions by the time it ran its course in 2003, according to the World Health Organization.

Georgieva said that “there was a dip in growth in the months during and immediately after the containment” of the epidemic. But then came a rebound, and growth for the year “ended up being just 0.1% lower,” she added.

Yet China plays a much larger role in the international economy than it did 17 years ago.

“The Chinese economy at the time of SARS, in terms of share in the world economy, was smaller,” Georgieva said. It accounted for 4% of global gross domestic product then but contributes 18% now, “and therefore we are seeing a country with more significance globally,” she explained.

The repercussions of the coronavirus outbreak are already apparent in supply chains, according to Kristalina Georgieva, the IMF’s managing director. (Photo by Takeshi Kawanami)

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China is closing gap with United States on research spending

  
  Analysis
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China’s central bank said it will inject 1.2 trillion yuan ($173.8 billion) worth of liquidity into the markets via reverse repo operations on Monday, as the country prepares to reopen its stock markets amid a new coronavirus outbreak.

China’s authorities have pledged to use various monetary policy tools to ensure liquidity remains reasonably ample and to support companies affected by the virus epidemic, which has so far claimed 305 lives, all but one in China.

The People’s Bank of China made the announcement in a statement published on its website on Sunday, adding the total liquidity in the banking system will be 900 billion yuan higher than the same period in 2019 after the injection.

According to Reuters calculations based on official central bank data, 1.05 trillion yuan worth of reverse repos are set to mature on Monday, meaning that 150 billion yuan in net cash will be injected.

Investors are bracing for a volatile session in Chinese markets when onshore trades resume on Monday after a break for the Lunar New Year which was extended by the government.

China’s stock, currency and bond markets have all been closed since Jan. 23 and had been due to reopen last Friday. (more…)

Markets and the Pathogen in the Week Ahead

  
Analysis, Forex
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The infectious and mortality rates of the new coronavirus have become the main force driving the pendulum of investor sentiment toward fear. The move is all the more dramatic as the investors had been positioned for a continuation of the historic bull market in equities and eager to take on new risks.

The coronavirus has surpassed the earlier precedents of SARS (2003) and the Swine Flu (2009). The World Health Organization declared an international health emergency, which will free up resources and boost efforts to contain the pathogen. It took roughly 20 months to devise a vaccine for SARS, and it is estimated that a vaccine is possible within a month or so now to begin the testing process. Although China is expected to return from the extended Lunar New Year on February 2, more than a dozen provinces and cities will be closed several days longer, which ballpark estimates suggest are responsible for a little more than 2/3 of GDP and 3/4 of exports. Supply-chain and business disruptions will likely last longer still.

Investors fear that the health crisis will turn into an economic crisis. Although President Xi is understood to be the strongest Chinese leader in a generation, the challenges that China faces are immense: US rivalry and trade conflict, Hong Kong, Taiwan, and a highly leveraged domestic economy underpinned by a deteriorating demographics. China recently reported its birthrate fell to a record last year. Still, some argue that the situation is even more dire as the official figures exaggerate both the population and the birth rate. More monetary and fiscal stimulus is expected to be delivered to cushion the impact. Some forecasts show the Chinese economy slowing to around 4.5% in Q1 20 from 6.0% in Q4 19.

Since the onshore yuan (CNY) stopped trading for the holiday, the dollar appreciated by a net of a little less than 1% against the offshore yuan (CNH). A catch-up move of roughly the same magnitude would bring the greenback toward CNY7.0. While the last time the dollar rose through that threshold, the US accused China of currency manipulation, this time is considerably different. Moreover, of all times, this is the time when China could likely get away with manipulation if it wanted. It is not just because of the macro shock, but also because the US has played the card once and relatively quickly reversed itself. (more…)

‘Monitor’ tax on foreign trip

  
  Analysis
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The Union budget has imposed a 5 per cent tax on foreign travel packages bought from tour operators with effect from April 1, 2020.

Tour operators are liable to charge the amount as TCS (tax collected at source) when the package is bought. For those who do not have PAN or Aadhaar, the TCS rate will be 10 per cent. Although the buyer will be asked to pay the TCS upfront, his or her overall tax burden in a year will remain the same as the TCS amount will be set off against the overall annual tax outgo.

This suggests the government might not be able to collect additional revenue through this measure, and the move might only be to widen and deepen the tax net through “monitoring”.

“It appears that the provision to impose TCS on overseas tour packages is a way for the tax department to monitor foreign travel,” said Asim Choudhury, principal associate at Khaitan & Co.

In January, the IT department had proposed a detailed tax return form for those who spent more than Rs 2 lakh on foreign travel. However, the proposal was rolled back after widespread protests.

Travel industry participants said the tax department periodically sought names of people travelling abroad from tour operators. This is usually done to check if the spending on a tour is commensurate with the income shown in the annual return.

Anil Punjabi, eastern region chairman of the Travel Agents Federation of India, said the new tax could result in travellers finding ways to dodge buying tour packages. “Instead of buying tour packages from us, they will either curate a package themselves or take help from friends or family staying abroad to book flight tickets or hotels,” Punjabi said.

The budget has also tried to plug remittances sent abroad. An authorised dealer receiving an aggregate amount of Rs 7 lakh in a year shall also be liable to collect TCS at 5 per cent.

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