Global stocks and oil hit as Wuhan virus fears deepen, safe havens gain

LONDON (REUTERS, BLOOMBERG) - World shares fell to their lowest in two weeks on Monday (Jan 28) as worries grew about the economic impact of China's spreading coronavirus with demand spiking for safe-haven assets such as Japanese yen and Treasury notes.

The death toll from the coronavirus outbreak in China rose to 81 and the virus spread to more than 10 countries, including France, Japan and the United States. Some health experts questioned whether China can contain the epidemic.

The MSCI All-Country World Index, which tracks shares across 47 countries, was down 0.42 per cent to its lowest since Jan. 13.

In Europe, stock markets slumped at the start of trading, tracking their counterparts in Asia. The pan-European STOXX 600 index fell 1.4 per cent to its lowest level since Jan 14, led by miners after major metal prices fell and travel and luxury stocks.

Shares of mining companies slumped 3.1 per cent, dragged down by their exposure to China, the biggest decline among the major European subsectors.

"The coronavirus is an economic and financial shock. The extent of that shock still needs to be assessed, but it could provide the spark for an arguably long-overdue adjustment in the capital markets," Marc Chandler, chief market strategist at Bannockburn Securities, told clients.

In Asia, Japan's Nikkei average slid 2.0 per cent by the close, the biggest one-day fall in five months. A Tokyo-listed China proxy, ChinaAMC CSI 300 index ETF, fell 2.2 per cent.

MSCI's broadest index of Asia-Pacific shares outside Japan was off 0.45 per cent, although markets in China, Hong Kong, Taiwan, South Korea, Singapore and Australia were closed on Monday.

US S&P 500 mini futures were last down 0.9 per cent, after falling 1.3 per cent in early Asian trade.

The ability of the coronavirus to spread is getting stronger and infections could continue to rise, China's National Health Commission said on Sunday. Nearly 2,800 people globally have been infected and 81 in China killed by the disease.

China announced it will extend the week-long new year holiday by three days to Feb. 2 and schools will return from their break later than usual. Chinese-ruled Hong Kong said it would ban entry to people who have visited Hubei province in the past 14 days.

"With most Asian markets closed, fast-money investors are buying risk-off hedges like Treasuries and selling the Nikkei," said Masahiko Loo, portfolio manager at Alliance Bernstein.

"I think this would continue this week, until China markets resume trading next week and the coronavirus outbreak subsides."

Thailand's stocks market slumped amid concern China's ban on all group tours would damage Thailand's vital tourist industry, adding to the problems of a struggling economy.

Tourism is a key driver of Thai growth and a bright spot in South-east Asia's second-largest economy, which is growing at its slowest pace in years. Chinese tourists are Thailand's biggest source of visitors.

The main Thai stock index slid as much as 3 per cent to its lowest in more than three years, with Airports of Thailand down as much as 6 per cent to a more than seven-month low, and Minor International - a hospitality, restaurants and lifestyle brands company - sliding as much as 9 per cent.

The baht eased to a five-month low.

Chinese holidaymakers - many on group tours - spent almost US$18 billion (S$24.4 billion) in Thailand last year, more than a quarter of all foreign tourism receipts, government data show. The industry as a whole contributes 21 per cent to gross domestic product, according to the World Travel & Tourism Council.

"This is a big deal. I think about 90 per cent of Chinese tourists will disappear each month," Chairat Triratanajaraspon, president of the Tourism Council of Thailand, told Reuters. "If the situation drags on, our Chinese tourist target will be missed," he said.

The council earlier predicted about 11 million Chinese tourists this year, after 10.99 million in 2019.

Charnon Boonnuch, an economist at Nomura in Singapore, said the virus outbreak could be another downside risk to his economic growth forecast of 2.7 per cent this year, a sluggish recovery from a forecast of 2.5 per cent in 2019, a five-year low.

However, Deputy Prime Minister Somkid Jatusripitak said he expected the coronavirus would have only a short-term impact on Thailand's tourism, as China should be able to handle the situation. He also sought to calm investors unnerved by the market sell-off, saying battered stocks would later rise.

"Investors should not panic. Take it easy," Somkid said. "Do believe that our economic fundamentals are still good".

US Treasury prices advanced, pushing down yields. The benchmark 10-year note's yield fell to a three-and-half-month trough of 1.627 per cent.

In the currency market, the Japanese yen strengthened as much as 0.5 per cent to 108.73 yen per dollar, its two-and-a-half-week high.

The euro last stood at US$1.1031 to the dollar, up from its eight-week low of US$1.1019 on Friday.

The offshore yuan dropped more than 0.5 per cent to 6.9776 against the dollar, its weakest since Jan. 6.

The coronavirus outbreak also pressured oil and other commodity prices.

US West Texas Intermediate crude futures plummeted 3.8 per cent to a three-and-a-half-month low of US$52.15. Brent shed more than 3 per cent to a three-month low of US$58.68 per barrel.

"Investors will react quickly to any sign of negativity and this is no exception as China announces that the issue has become an emergency. This could keep oil prices fragile until the coronavirus shows signs of slowing down," said Mihir Kapadia, chief executive at Sun Global Investments.

Spot gold rose as much as 1.0 per cent to US$1,585.80 per ounce, the highest level since Jan. 8, as the coronavirus outbreak pushed up demand for the safe-haven metal.