Asian markets plunge further as coronavirus claims more lives

Asian stocks extended a global selloff on Tuesday as China took more drastic steps to combat the coronavirus outbreak, while bonds found favour on expectations central banks would need to keep stimulus flowing to offset the likely economic drag.

As the number of deaths rose above 100 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.

China has already extended the Lunar New Year holiday to February 2 nationally, and to February 9 for Shanghai. On Tuesday, the country’s largest steelmaking city in northern Hebei province, Tangshan, suspended all public transit in an effort to prevent the spread of the virus.

With China’s and Hong Kong’s financial markets shut, investors were selling the offshore yuan and the Australian dollar as a proxy for risk.

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.8 percent in Asian trading on Tuesday, while Japan’s Nikkei was 0.7 percent down.

After a holiday on Monday, Australian shares tumbled 1.3 percent and South Korea’s Kospi index skidded 3.3 percent. Singapore’s Straits Times Index also declined by more than 2 percent.

“China’s growing importance in Asia-Pacific trade and investment flows has created considerable vulnerability for the Asia-Pacific region from this type of unpredictable ‘black swan’ event,” said Rajiv Biswas, Asia Pacific Chief Economist at IHS Markit in a note sent to Al Jazeera.

“A key near-term risk is from the negative impact on consumer confidence in China if the Wuhan epidemic continues to escalate,” Biswas said.

Analysts said travel and tourism would be the hardest-hit sectors together with retail and liquor sales, though healthcare and online shopping were seen as likely outperformers.

“The wildcard is not the fatality rate, but how infectious the Wuhan virus is,” Citi economists wrote in a note.

“The economic impact will depend on how successfully this outbreak is contained.”

On Monday, key indexes for British, French and German equity markets slid more than 2 percent, as did pan-European markets on worries about the potential economic impact from the deadly virus. Stocks on Wall Street fell more than 1 percent.

E-Mini futures for the S&P 500 reversed some of the losses after slumping 1.6 percent overnight for their biggest single-day percentage loss since last October. They were last up 0.25 percent.

‘Knee-jerk reaction’

Analysts at JPMorgan said the coronavirus outbreak was an “unexpected risk factor” for markets though they see the contagion as a regional rather than a global shock.

“The rise in risk aversion and worry of a region-wide demand shock … means the knee-jerk market reaction will likely be to richen low-yielding government bonds,” JPMorgan analysts wrote in a note.

“Concerns about coronavirus contagion has driven yields lower and is the latest risk of a series that have driven US Treasury [UST] yields far below what fundamentals indicate.”

Investors typically view USTs as safer investments in times of heightened economic risk, although returns, or yields, decline as prices rise on buying activity.

UST 10-year note yields dived as deep as 1.598 percent on Monday, the lowest since October 10. Yields on two-year paper also fell sharply while Fed fund futures rallied as investors priced in a higher probability of an interest rate cut later this year.

The Japanese yen, which has been rising for the past five sessions and is considered another safe haven during periods of uncertainty, paused at 108.94 per US dollar.

The Australian dollar was last down 0.1 percent at $0.6752, on track for its third straight day of losses.

The euro was steady at $1.1017.

In commodities, Brent crude oil futures extended losses, shedding 15 cents at $59.17 while US crude eased 12 cents to $53.02.

Spot gold was flat at $1,581.11 per ounce.