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Virus Outbreak May Affect Near-Term Sentiment in HK and China Stock Markets But Not the Long Term Prospects for the Mainland

  • The novel coronavirus outbreak is expected to have a temporary negative impact on the mainland economy in the first quarter. Yet, in view of the phase one trade deal reached by the US and China, a nascent rebound of global manufacturing, as well as the monetary easing and economic stabilisation measures launched by the Central Government, China’s economic prospects remain promising in the year ahead.
  • During the Central Economic Work Conference, it was proposed that the country’s monetary policy should be pursued with a moderate degree of flexibility and the financing costs of the general society should be brought down. This may suggest that China’s monetary policy may remain to be loose in 2020. Market expectations are growing that in the year to come, the country’s required reserve rate will be reduced further and mainland banks will be encouraged to tune down their lending rates, which may help maintain market liquidity.
  • Moreover, this year the Central Government is going to start preparations for the 14th Five-Year Plan, which may benefit 5G related sectors, high-end manufacturing industries, high-end consumer service segments, as well as pharmaceutical and healthcare industries.
  • According to Bloomberg’s data as of the January 2020, the HSCEI’s prospective Price/Earnings Ratio for 2020 is less than 8 times, lower than the major equity indexes around the globe.