Chinese markets plunge US$420 billion as rising novel coronavirus death toll fuels fears for global growth
03 February, 2020
The death toll from a coronavirus epidemic in China rose to 361 and Chinese stock and commodity markets fell heavily on Monday (Feb 3) as investors retreated into safe-haven assets in the first trading session after an extended Chinese New Year break.
Chinese stock and commodity markets wiped US$420 billion off China's stock market in their first session since Jan 23, when the outbreak of the newly identified virus had claimed only 17 lives in Wuhan city in Hubei province.
By lunchtime, the benchmark Shanghai Composite index sat 8 per cent lower near an almost one-year trough, and was poised to post its worst day in more than four years.
The yuan opened at its weakest level in 2020 and slid almost 1.2 per cent, past the symbolic 7-per-dollar level , as the falls soured the mood in markets throughout Asia.
Shanghai-traded oil, iron ore, copper and soft commodities contracts all posted sharp drops, catching up with sliding global prices.
Investors were bracing for volatility when onshore trade in Chinese stocks, bonds, yuan and commodities resumed, following a steep global selldown on fears about the impact of the virus on the world's second-biggest economy.
"This will last for some time," said Iris Pang, Greater China economist at ING.
"It's uncertain whether factory workers, or how many of them, will return to their factories," she said.
"We haven't yet seen corporate earnings since the (spread of the) coronavirus. Restaurants and retailers may have very little sales."
More than 2,500 stocks fell by the daily limit of 10 per cent. The Shanghai Composite last sat at 2,734.7 and the onshore yuan at 7.0165 per dollar.
Copper sank to its lowest in more than three years, falling by its daily limit of 7 per cent, while aluminum , zinc and lead shed more than 4 per cent and soybeans dropped 2 per cent.
Bond prices, meanwhile, surged, with March futures contracts for 10-year bonds jumping 1.5 per cent .
CLEAR MESSAGE
Amid the selldown, the People's Bank of China (PBOC) injected 1.2 trillion yuan (US$173.81 billion) into money markets through reverse bond repurchase agreements. It also unexpectedly cut the interest rate on those short-term funding facilities by 10 basis points.
China's securities regulator moved to limit short selling and urged mutual fund managers not to sell shares unless they face investor redemptions, sources told Reuters.
"It is a clear message that they want to take growth-supportive measures and keep the market reassured," said Mayank Mishra, macro strategist at Standard Chartered Bank in Singapore of the PBOC move.
"They are managing the situation well. The timing of the repo rate cut came a little quicker than some people were expecting, but they wanted to send a clear message."
Beijing has also said it would help firms that produce vital goods resume work as soon as possible, state broadcaster CCTV reported.
Cities like Wuhan, where the virus originated, remain in virtual lockdown and China is facing mounting international isolation. Analysts are beginning to suspect the impact will be deeper than the hit delivered by the Severe Acute Respiratory Syndrome (SARS) outbreak in 2003.
"Although most analysts agree it is too early to estimate the impact of (the virus) on the global economy, one thing I am increasingly more certain of is that the near-term shock to Chinese economy will be much higher than that in SARS period," said Tommy Xie, head of Greater China research at OCBC.
"The shock to Chinese manufacturing and industry sectors is likely to be unprecedented."
Since then the flu-like virus has spread to more than two dozen other countries and regions, with the first death outside of China reported on Sunday, that of a 44-year-old Chinese man who died in the Philippines after travelling from Wuhan.
The total number of deaths in China rose to 361 as of Sunday, up 57 from the previous day, the National Health Commission said. The number of new confirmed infections in China rose by 2,829, bringing the total to 17,205.
While stock markets reopened, most provinces have extended the Chinese New Year holiday to try and contain the virus, with workers in Hubei not scheduled to return to work until after Feb 13.
At least another 171 cases have been reported in more than two dozen other countries and regions, including the United States, Japan, Thailand, Hong Kong and Britain.
The World Health Organization has declared the outbreak a public health emergency of international concern, but said global trade and travel restrictions are not needed.
More than 250 people from 30 countries arrived in France on Sunday after being flown out of Wuhan, the centre of the outbreak, in the latest evacuation of foreign nationals from the locked-down city.
Australia evacuated 243 people, many children, from Wuhan on Monday and will quarantine them on a remote island in the Indian Ocean off its northwest coast.
Australia on Saturday followed the United States in barring entry to all foreign nationals travelling from mainland China.
The Group of Seven leading industrialised democracies are trying to find a common approach for dealing with the fast-spreading new coronavirus, German Health Minister Jens Spahn said on Sunday.
The virus is thought to have emerged late last year in a Wuhan market illegally trading wildlife. It can cause pneumonia and spreads between people in droplets from coughs and sneezes.
It has created alarm because it is spreading quickly and there are still important unknowns surrounding it, such as its death rate and whether it is able to spread before any symptoms show.
The number of deaths in China from the new virus has now passed the total Chinese toll from the 2002-03 outbreak of severe acute respiratory syndrome (SARS), another coronavirus which emerged from China and killed more than 800 people around the world.
Even so, Chinese data on the numbers of infections and deaths suggests the new coronavirus is less deadly than the SARS outbreak, although such numbers can evolve rapidly.
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