Chinese shares plunge as investors cut risks over virus outbreak

Chinese stock markets opened after Lunar New Year holidays that were extended due to the spread of the coronavirus.

Medical officers prepare evacuated Indonesian nationals from Wuhan, China''s center of the coronavirus epidemic, before transferring them to the Natuna Islands military base to be quarantined, at Hang
The death toll from the coronavirus outbreak has spread rapidly in China with the Philippines recording the first overseas death on Monday [File: Antara Foto via Reuters]

Investors worried about the spread of the coronavirus wiped more than $400bn off the value of China’s stocks in the first trading session on Monday after an extended Lunar New Year break while the death toll from the epidemic rose to 361.

The Shanghai Composite index sank to a one-year low after falling more than 8 percent on opening and sustaining losses throughout the day. The index closed down 7.9 percent for its biggest daily drop since 2015.

Shanghai-traded commodities also plunged, catching up with losses on global markets. Shanghai crude oil, Dalian iron ore and Shanghai copper all fell by their daily limits.

The People’s Bank of China (PBOC), the country’s central bank, pledged 150 billion yuan ($21.7bn) in liquidity in a slew of measures to shore up their financial markets, but this was seen as a short term fix that may not stem further losses.

“The PBOC’s hint of lowering interest rates is tempering the immediate downside … but the economic reality check could come later today or this week,” Stephen Innes, Asia Pacific market strategist at AxiTrader told Al Jazeera.

Index compiler MSCI’s broadest index of Asia-Pacific shares outside Japan recorded its eighth straight day of losses as it fell 0.07 percent, while Japan’s Nikkei stumbled 1.01 percent and Australian shares fell 1.34 percent.

Hong Kong’s Hang Seng index lost 2.81 percent after medical workers announced they were going on strike due to dissatisfaction over the government’s handling of the virus outbreak.

The PBOC tried to ease the panic selling by injecting 1.2 trillion yuan ($171bn) into the market via reverse repo operations, which involves buying bonds and other securities in order to sell them back in the future at a slightly higher price.

The impact from the virus epidemic will be limited and temporary, and China’s financial markets will return to normal in the long run, according to a commentary in the Financial News, a newspaper owned by the PBOC.

It also said a plunge in the country’s stock markets on Monday was due to some irrational factors, including panic selling triggered by a “herd effect”.

The Chinese yuan currency sank to its weakest level this year in onshore trade, slipping to 7.02 against the US dollar.

While Robert Carnell, ING chief economist and head of research for Asia Pacific viewed the decline as having been a “fairly steady drop”, he believes the yuan could fall as low as 7.20 against the dollar “hopefully before some better news comes out on the virus”, he told Al Jazeera.

The death toll from the new coronavirus across China rose sharply to 361 on Monday, Chinese authorities reported.

China’s finance ministry will offer subsidies on interest payments for some firms hit by the spreading outbreak, state-run newspaper Guangming Daily reported on Monday.

With most Chinese factories and offices closed until February 10, China’s industrial production in the first quarter of 2020 will suffer significantly, said Rajiv Biswas, Asia Pacific chief economist at IHS Markit.

“This also creates a large negative shock to the Asian manufacturing supply chain as Chinese new orders for intermediate goods and raw materials slump in February,” he said in a note shared with Al Jazeera.

Source: Al Jazeera, News Agencies