(Yicai Global) Feb. 4 -- The Shanghai Composite Index slumped 7.7 percent on the first trading day since China's Lunar New Year holiday, but senior Yale University researcher Stephen S. Roach deems the decision to open the markets to be the right one, he told Yicai Global.

"Markets cannot be shut to forestall the impact of a potentially significant disruption in other economies or rethinking of investor sentiment," said Roach, who is the former chairman of Morgan Stanley Asia and its chief economist, adding, "I think the impact of the virus still has a considerable way to go, but ultimately the Wuhan coronavirus will be contained."

Yicai Global: The stock markets in China opened yesterday, the first time since the Spring Festival holiday, and there is obviously concern about opening the market this Monday amid the novel coronavirus outbreak. So what is your take on regulators' decision to open the market? 

Roach: Markets need to be open and they always do. And there has been a lot of volatility in major markets around the world last week, and so the Monday decline in the domestic Asian markets was really catching up with what had already happened elsewhere in the world. It was the right decision: markets cannot be shut to forestall the impact of a potentially significant disruption in other economies or rethinking of investor sentiment and that was a correct decision to make. By opening the market the regulators have demonstrated that they still have confidence and the price discovery purpose of markets and the liquidity injection by the People's Bank of China indicated that the financial authorities have plenty of ammunition to provide support to the markets.

Yicai Global: The Shanghai Composite Index tanked nearly 8 percent. Do you think it's short-lived? How should investors be prepared?

Roach: I think the impact of the virus still has a considerable ways to go, but ultimately the Wuhan coronavirus will be contained -- it's just a question of when, not if -- and in the meantime, as the disease spreads in terms of infection rates and fatalities, there will continue to be growing concern about the state of the economy that will be reflected in the Chinese stock market.

Yicai Global: What is your take on the impact of the overall economy on the first quarter as well as the whole year?

Roach: It's clearly gonna have a major impact on the first quarter with restrictions on intercity travel, impact on supply chains, impacts on retail buying during a critical holiday period. These are major disruptions that will hit the Chinese economy very hard for a short period of time.

Yicai Global: Do you think the Chinese government has enough policy tools to lift up the economy?

Roach: The Chinese government, the People's Bank of China in particular, has a lot of tools at its disposal, and the central bank has already announced a sizable liquidity injection into the financial system over the weekend ... and so what the liquidity will do is, once the virus is over, it will reinforce the likelihood of a sharp rebound in Chinese activity ...

Editors: Zhang Yushuo, Ben Armour