IS THE CHINESE SELLOFF OVER?

Chinese shares ended its brutal selloff today ending about 1.50% higher. Monday 90% of securities listed on the Chinese exchanges dropped the maximum amount allowed in one day.  One trader commented “this was the most savage selloff he has ever witnessed.”

There was concerns that since a huge number of stocks trading down limit thus suggesting selling could be more pronounced than expected given the possible leverage involved.

The Peoples Bank of China (PBOC) injected about $174 billion into the markets to maintain liquidity.

China extended the Lunar Holiday for 12 provinces until next Monday and Bloomberg writes this region represents about 69% of the country’s GDP.

In some regards the hysteria surrounding the coronavirus is akin to that of an impending hurricane.  To write the incredibly obvious no one knows the end result and to declaratively write anything is meaningless.

Speaking of hysteria, what words can one use to describe Tesla’s incredible advance?  At one time yesterday shares surged more than 21%. The company has advanced about 79% in 2020 alone and have more than tripled since late October.  The company is the second most valuable global car company.

Bloomberg writes to justify Tesla’s valuation, defined as trading at the average NASDAQ multiple of 28, the company would require an annual profit of about $4.9 billion.  The company reported a net loss $744 million for 2019.  Is this possible given that based upon every other Superbowl commercial, everyone is now manufacturing a battery powered car.

As written many times the markets can remain irrational one day longer than one can remain solvent or sane.

Commenting about US equities, shares advanced on optimism that the virus will be contained, that recent hyperbole is similar to that of an impending hurricane where everyone one knows the direction it will ultimately take and the billions of damages it will inflict.

After the close, the last of the big five posted results, results that missed expectations.  At the time of this writing shares are down about 3%. Rebounding from over a 5% loss.

Last night the foreign markets were up.  London was up 1.36%, Paris up 1.29% and Frankfurt up 1.16%.  China as up 1.34%, Japan up 0.49%  and Hang Sang up 1.21%.

The Dow should open considerably higher because of the advance in Chinese shares and the belief the efforts to contain the coronavirus are effective.  The 10-year is off 16/32 to yield 1.58%.

kent
The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.