Shanghai stocks plunge as coronavirus spreads

Andrew Cummings
February 3, 2020

The Shenzen Component index (399001.SZ) fell 11.6% and the Shanghai Composite index (000001.SS) dropped 7.7%.

Today the Shanghai Composite index shed almost eight per cent of its value to hit a one-year low, according to Reuters calculations. Declines were led by telecommunications, technology and commodity producers, and analysts expect the bearish sentiment to persist.

On Monday also, the Shanghai Futures Exchange (ShFE) said will suspend its night-time trading sessions until further notice, citing the need to prevent and control a virus outbreak in China.

More than 2,500 stocks fell by the daily limit of 10%.

Metals, energy and agriculture futures were all hammered, with China's benchmark iron ore contract falling by its daily limit of 8%. The onshore yuan sank 1.5%, dropping below seven yuan to one United States dollar in its first day back from the holiday break.

Looking to head off a panic, China's central bank plans to inject 1.2 trillion yuan ($173.8 billion) of liquidity into the markets via reverse repo operations on Monday. For insurers with ample solvency, the regulator will allow them to "appropriately raise their investment" in equities from the current limit of 30% of assets.

Asian markets looked set for another bumpy ride on Monday on concern that the novel coronoavirus outbreak may hit global growth, with all eyes on China where trading resumes today following the Lunar New Year break.

Monday's slump is the worst since the July 2015 stock bubble burst.

Shanghai traded commodities also plunged, catching up with global drops.

The losses in China followed declines in global markets since January 24 when the Lunar New Year break began, with the virus fears driving down prices in all sectors.

The losses come as producers continue to boost output, while the cancellation of hundreds of flights in and out of China is also having a major impact, analysts said.

J.P. Morgan Asset Management is advising clients to diversify their positions geographically and also increase developed bond market holdings to reduce volatility and negate the impact from market forces.

The MSCI Emerging Market Index sank 0.6 per cent.

"As most employees won't return to work until February 9, the output losses are likely to be larger than expected, and incoming economic activity data will continue to prompt the authorities to take more actions in order to reduce the adverse impact of the Wuhan coronavirus on the economy".

But in Hong Kong, the benchmark Hang Seng Index edged up 0.17 percent, or 43.59 points, to 26,356.22 in the first few minutes.

China's National Health Commission said Monday that the coronavirus had claimed the lives of 361 individuals among more than 17,000 confirmed cases.

The World Health Organisation (WHO) last week declared the virus an epidemic and the New York Times said the outbreak was likely to be upgraded to a pandemic.

Countries have imposed travel restrictions on China, and factories and retailers including Apple and Starbucks have closed locations in the mainland, raising questions over the economic impact. The U.S. market, which had calmly been setting record after record, suffered its worst January since 2016 and its first monthly loss since August.

Citi revised its full-year forecast for China's GDP growth to 5.5 percent in 2020 from 5.8 percent.

Additional reporting Yusho Cho in Shanghai.

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