“If the yuan and domestic equities can persist with their resilience, China will likely replace the U.S. as a haven for global assets.”

 

China Traders Put Faith in Beijing’s Pledge to Save Markets (1)

 

2020-03-13 09:01:08.869 GMT

 

By Bloomberg News

 

(Bloomberg) -- Yin Ming took his dog for a walk not long after news of the worst U.S. sell-off since 1987 flashed on his screens Friday morning. He was long Chinese stocks, and the market had been outperforming.

 

“It was life as usual for me,” said Yin, vice president of investment firm Baptized Capital, who woke up at 4 a.m. in Shanghai to check the overnight market moves. “If the yuan and domestic equities can persist with their resilience, China will likely replace the U.S. as a haven for global assets.”

 

That confidence could prove unfounded with the economy and corporate profits under an enormous amount of pressure. China’s central bank had already flooded the market with liquidity, encouraging leverage and boosting stock prices. Now, expectations of more stimulus -- and a dose of nationalism -- are helping limit equity losses. It means that while the Shanghai Composite Index fell 4.9% this week, it still fared better than most major indexes.

 

The risk is that further action by the central bank falls short of expectations, undermining the bull argument and triggering losses. As the experience in global markets has shown, central banks have been powerless to calm panic selling once it starts.