SHANGHAI (REUTERS, BLOOMBERG) - Panic coursed through the world's second-largest stock market before the start of a week-long trading break as investors sold stocks on concern a deadly virus will worsen over the Lunar New Year holiday.
The Shanghai Composite Index settled 2.8 per cent lower after the close of trading, the worst end to a Lunar Year in its three-decade history. More than 90 per cent of the mainland's 4,000 stocks fell on volumes that were 20 per cent above average, with foreign traders selling a record US$1.7 billion worth of the shares via links with Hong Kong. The yuan weakened as much as 0.4 per cent and government bond futures rose to the highest since 2016.
Hong Kong's Hang Seng Index finished 1.5 per cent lower. Nikkei index closed down 1 per cent, Korea's Kospi index ended 0.9 per cent lower while Australia's S&P/ASX 200 fell 0.6 per cent.
Singapore's Straits Times Index closed down 19.37 points or 0.6 per cent to 3,234.56.
Authorities in Wuhan, the epicentre of the new coronavirus outbreak that has killed 17 and infected nearly 600 people, shut urban transport networks and suspended outgoing flights. The drastic measures spooked investors across Asia who dumped shares of restaurants, cinemas, casinos, airlines and scrambled for safe haven in bonds.
Selling intensified in afternoon trading as news trickled in about fresh cases of infection across China, and cancellation of entertainment events.
"Fear and panic are rampant," said Wang Daixin, a fund manager at Bristlecon Pine Asset Management. "It's hard to tell how bad things will get before a turn for the better. I didn't get out when I had the chance to, so now I might as well sit it out rather than lose money. Others are offloading at whatever cost."
The virus and its potential impact on the economy and financial system pose a growing challenge for President Xi Jinping. It comes at a time when the Communist Party is seeking to maintain stability in the face of a trade war with the US, the spread of swine fever, a debt mountain, rising corporate defaults and protests in Hong Kong.
Larry Hu, economist at Macquarie Capital Ltd, said the market now is dominated by fears of the Wuhan virus, which stirs dark memories of the 2002-2003 Sars outbreak. Complicating efforts to contain the virus, millions of Chinese will travel for the Lunar New Year, which Hu described as "the largest people movement on the planet."
"The bad news is that the worst is yet to come," he wrote, adding: "We can't answer how severe it will be and when it will end."
The final day before the Lunar New Year break is historically a good one for stock investors: since its launch in 1991, the Shanghai Composite Index has ended the session lower on only six occasions.
"A key indicator for me will be the number of the new cases," said Li Shiyu, managing director at Guangdong Xiaoyu Investment Management Co. "The epidemic may reach a peak in two weeks and hopefully start to slow. I may cut my positions given the market will be under pressure. If there is a trend for new cases to decline, I would consider buying shares again."
The virus has dented what had been growing enthusiasm toward equities. Confidence was riding high as Beijing signed a phase one trade deal with the US and data signaled China's economy was stabilizing.
The virus has dented what had been growing enthusiasm toward equities. Confidence was riding high as Beijing signed a phase one trade deal with the U.S. and data signaled China's economy was stabilizing.
The outbreak posed bigger downside risks in China's sequential economic growth as consumption and the service sector is a bigger part of the economy.
The sell-off in China was across the board, but most concentrated in transport and leisure sectors as people avoid interactions and outdoor activities.
The healthcare sector was the only bright spot, as demand for vaccines and health check-ups surged following the virus outbreak, although no drugs can directly treat the flu-like symptoms of the new coronavirus.
Airline shares continued to weaken, with Air China , China Eastern Airlines and China Southern Airlines dropping more than 3 per cent each.
Wanda Film slumped nearly 7 per cent, while China Film and Beijing Enlight Media Co fell nearly 5 per cent.
Bucking the trend, biotech firms and drugmakers surged with Shandong Lukang Pharmaceutical Co, Jiangsu Sihuan Bioengineering Co and Jiangsu Lianhua Pharmaceutical Co all advancing by their daily limit of 10 per cent.