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On Monday (3 February) the Chinese stock market saw its biggest fall in four years as it reopened after the Lunar New Year Holiday.

The Shanghai Composite Index fell around 8%, despite the People’s Bank of China’s (PBoC) attempt to mitigate the impact of the coronavirus outbreak on its economy, with plans to inject around $173bn (£132bn) of liquidity into the markets.

The Chinese stock market had been closed since 23 January, a period in which the number of people affected with the virus exceeded the total infected with Severe Acute Respiratory Syndrome (SARS) globally in 2003. Unlike in 2003, China has acted quickly, shutting down a number of cities, including Wuhan where the outbreak originated, to try and limit the spread of the virus.

Lessons learned The world’s second largest economy is expected to experience a slowdown in consumption and production from the travel restrictions and the closure of factories, offices, restaurants and cinemas.

Not surprisingly, the Chinese stock market stumbled as it caught up on recent events.

Paul Craig, portfolio manager, says: “The lesson from past epidemics is that demand quickly picks up once an all-clear is sounded. Chinese leaders are betting that draconian quarantines and travel restrictions will stem the viral tide fairly quickly so they can stick with their present ‘selective easing’ stance and avoid a big stimulus.

“The next couple of weeks will determine whether this policy mix is adequate or if Beijing will need to unleash more liquidity support for a faltering economy,” he says.