China Stocks Have Worst Day in Five Years

In traditional Chinese lore, rats are considered quick-witted and resourceful but lack courage.

So perhaps it should not be a surprise that China’s Year of the Rate started off with investors fleeing the coronavirus.

The benchmark Shanghai Composite Index plunged 7.7 percent on Monday. The Shenzhen Composite fell 8.4 percent.

It was the first time the stock markets were open in China after closing last week for the lunar new year celebrations. Some China watchers were surprised the sell-off was not even more severe given the potential for a build-up in selling pressure as news of the coronavirus outbreak got worse and worse last year.

China’s central bank got ahead of the sell-off by announcing that it would inject 1.2 trillion yuan into the country’s financial system. What’s more, brokers in China were instructed to stop lending securities, which puts the breaks on short-sellers betting on stock declines. Added liquidity and a ban on short-sales is a pretty big signal to markets that the government stands ready to keep stocks afloat.