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Coronavirus: Worried investors erase $420 billion from China's stock market

Coronavirus: Investors sold the yuan (Chinese currency) and dumped commodities as the fears concerning the spreading of the deadly virus and its economic fallouts drove selling on the first day of trade in China

twitter-logoBusinessToday.In | February 3, 2020 | Updated 13:30 IST
Coronavirus: Worried investors erase $420 billion from China's stock market
Coronavirus crisis: A men wearing a mask walk at the Shanghai Stock Exchange building at the Pudong financial district in Shanghai, China, as the country is hit by an outbreak of a new coronavirus, February 3, 2020. Pic/Reuters

Coronavirus worries have caused investors to wipe $420 billion off China's stock market on Monday.

Stockholders sold the yuan (Chinese currency) and dumped commodities as the fears concerning the spreading of the deadly virus and its economic fallouts drove selling on the first day of trade in China since the Lunar New Year.

Despite the central bank's cash infusion into the financial system, the market dropped.

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Coronavirus outbreak has claimed 361 lives as of Sunday. It had stood at 17 when Chinese markets last traded on Jan. 23.

By lunchtime, the benchmark Shanghai Composite index.  SSEC sat 8% lower near an almost one-year trough and 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%, 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.

The new virus has created alarm because it is spreading quickly, much about it is unknown, and authorities' drastic response is likely to drag on economic growth.

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"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%. The Shanghai Composite last sat at 2,734.7 and the onshore yuan at 7.0165 per dollar.

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Copper sank to its lowest in more than three years, falling by its daily limit of 7%, while aluminium, zinc and lead shed more than 4% and soybeans dropped 2%.

Bond prices, meanwhile, surged, with March futures contracts for 10-year bonds jumping 1.5%.

Clear message

Amid the selldown, the People's Bank of China (PBOC) injected 1.2 trillion yuan ($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.

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"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."

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