China’s traders throw away script after virus jolts stock markets
February 21 2020 10:32 PM
Investors sit in front of an electronic stock board at a securities brokerage in Shanghai. China’s stock traders are navigating the vagaries of the country’s coronavirus data for clues on when euphoria fanned by Beijing’s emergency support measures may peak.

Bloomberg /Shanghai

China’s stock traders are navigating the vagaries of the country’s coronavirus data for clues on when euphoria fanned by Beijing’s emergency support measures may peak.
Assessing the development of the outbreak has become critical, traders say, as a significant turn for the better could reduce the urgency of further policy easing and call for a cut to bullish positions.
But feeling the epidemic’s pulse has been tricky, with the government repeatedly amending data methods. 
The number of new infections published Thursday for Hubei province, the centre of the health crisis, dropped sharply after China changed the way it reports them for the second time this month. Yesterday, the province upwardly revised daily tally released in the morning, blaming delays in confirming infections at a prison that wasn’t connected to the reporting system.
It’s prompted investors to get creative, putting indicators ranging from school-reopening dates to work-resumption schedules in different cities on top of their watch list, while watching with caution a rally that has seen more than $1tn of market value recovered following Feb. 3’s slump.
“With all the revisions, the virus data might not be so accurate and it confuses me,” said He Qi, a fund manager with Huatai-PineBridge Fund Management Co. “All I care is when schools will reopen to indicate the situation really getting under control, as nobody would risk the lives of young children.”
He plans to start trimming his holdings when local governments unveil more-definitive school-restart dates.
Here are some other indicators that may influence fund managers’ stock investment strategy:
Work resumption: Wei Tao, managing director of Shanxi Fengshang Investment Management Co, is keeping a tab on the number of cities where people go back to work. He said that will prompt some investors to pull out of stocks to reinvest in business operations.
“Once two-thirds of the economy is back in action, it’d be time to cut my position down to zero,” said Wei. “As much of the economy is still at a standstill, funds that would be otherwise investing in the real economy are flowing into stocks. When production and work resume, that money will rush out.”
Wei, who has mostly growth stocks in his current portfolio, said he will shift to a more-cautious approach by investing in convertible bonds or finance stocks after cutting his existing holdings.
Hubei cases: For Wu Yuefeng, a fund manager with Funding Capital Management Beijing Co, the bar for making trading decisions based on the official infection data is rather high.
“Given anecdotal cases of entire families being infected and a large backlog in reporting at the beginning of the outbreak, the data coming out of Wuhan might not show the whole picture,” he said, referring to the province’s capital city. Wu added an exit signal would be if newly confirmed cases in Hubei drops below 100 a day and the total number of patients fighting the virus falls to about 20% of the current level of about 50,000.
The daily tally of newly confirmed cases in Hubei, which has the vast majority of the nation’s infected population, has been declining since a spike on February 13 due to the government’s prior change of the data methods. The figure released yesterday was 631.
Train/air ticket sales: Yin Ming, vice president of Shanghai-based investment firm Baptized Capital, said he doesn’t follow virus infection data closely because it is subject to factors including changes in methodology. Rather, he reads sales volume of high-speed-train and airplane tickets to get a sense of how quickly the economy is recovering. If they reach “similar levels of the past few years, it’s a sign that economic activity is back to normal.”
Yin has bought shares in sectors that were most hit by the virus, including transportation and tourism stocks, to bet on a rebound.
Recovery may end party: Raymond Chen, a portfolio manager with Keywise Capital Management (HK) Ltd, said he’d be wary of any pickup in economic activity as measured by the monthly purchasing managers’ index as well as industrial inflation figures. The US dollar is also on his radar, as a strong appreciation in the currency would trigger capital outflows and hurt domestic liquidity.
“The earlier the economic rebound is, the more caution we’d need to take,” said Chen. “It’s a market sustained on liquidity support, and we only see such strong policy support and high tolerance of loose liquidity in times of a weak economy.

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