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China Posts Smallest Loss for 2020

This year’s tumble in stocks has left no corner of the world untouched, but China’s equity market continues to suffer the smallest decline on a year-to-date basis through yesterday’s close (Apr. 7) for the world’s major equity market regions, based on a set of exchange-listed funds.

 

By James Picerno

The iShares MSCI China ETF (MCHI) is down 8.9% in 2020 through yesterday’s close, the softest setback vs. the rest of field.

Supporting the relatively upbeat sentiment for China’s shares is growing optimism that the worst of the country’s battle with coronavirus fallout has passed. Reported data, which should be viewed cautiously, reflects a peak in new cases and deaths. In turn, economists are beginning to anticipate an economic rebound of some degree after a sharp downturn in the first quarter.

“The second quarter might be an important turning point, as there will be a significant rebound of economic activity from the first quarter,” advise a pair of analysts at Citic, China’s state-backed financial services conglomerate. “In the third and fourth quarters, the headline economic growth rate could return to the normal track of 6% or higher.”

Perhaps, although these are still early days for confidently declaring that the coronavirus fallout has peaked anywhere in the world. Health experts warn that a second wave of infections is possible later in the year. Meantime, since China was the first country to fall victim to the crisis, and has embraced an aggressive policy to battle the virus, it wouldn’t be surprising to learn that the country is among the nations to post signs of an economic rebound ahead of the rest of the world.

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In any case, China’s equity market appears to be anticipating that economic growth will return in the near term and relatively sooner vs. the other major world regions via ETF proxies.

By contrast, the worst year-to-date regional performer is iShares Latin America 40 (ILF), which has tumbled 45.0% so far in 2020. The crowd appears to be anticipating that South America’s battle with Covid-19 has only just begun. As Foreign Policy points out: “Latin America is facing a rising tide of cases of the new coronavirus, and many countries in the region are ill-equipped to handle it from a public health standpoint.”

US stocks are a more or less middling loser via SPDR S&P 500 (NYSEARCA:SPY), which has shed a bit more than 17% this year. That’s a bit softer than the 20.5% decline for the global equity benchmark, based on Vanguard Total World Stock (VT).

A critical issue for the US stock market is the timing of the peak in coronavirus cases and deaths. “If the curve is bending, for the first time, some time-line is coming into focus for restarting at least parts of the economy,” says Jim Paulsen, chief investment strategist at the Leuthold Group. “This means investors can start to reduce their best guesses as to how long this recession will last and even if the recession is very deep, if its duration can be shortened and known with some greater clarity, this would tend to raise the value of the stock market.”

Unfortunately, optimism from earlier this week faded with latest news that the total reported Covid-19 deaths for the US ramped on Tuesday (Apr. 7) to a record high.

On the bright side, the Institute for Health Metrics and Evaluation at the University of Washington is projecting (as of Apr. 8) that coronavirus deaths in the US will peak in four days (Apr. 12), based on the median estimate. Good news… if correct.