China: Stocks plunge almost 9% on virus fears

Henrietta Strickland
February 3, 2020

Stocks in mainland China plummeted more than 7% today as traders returned to the market following an extended holiday amid the coronavirus outbreak.

Looking to head off any panic, China's central bank plans to inject 1.2 trillion yuan ($173.8 billion) of liquidity into the markets via reverse repo operations on Monday. The virus has killed more than 360 people, all but one in China.

The benchmark Shanghai Composite Index ended the morning session down 8.13 percent, or 241.87 points, at 2,734.66, while the Shenzhen Composite Index, which tracks stocks on China's second exchange, was down 8.30 percent, or 145.78 points, to 1,611.04.

Shanghai Composite Index fell 8.2%. Australia's benchmark index was down 0.7%, while New Zealand shares fell 1.8%.

The People's Bank of China (PBOC) will allocate a hefty sum to stabilize the currency market and ensure there is enough liquidity in the country's financial institutions, which remain thwarted by the sweeping coronavirus epidemic. In South Korea, the Kospi declined 0.6 percent to 2,105.46.

The bank said it could make more cash available throughout the week.

"The PBOC may want to retain some flexibility, which means it can add more liquidity in the rest of the week if the sentiment is too bad", according to Tommy Xie, an economist at Oversea-Chinese Banking Corp. There are also a slew of other PMIs, including India and Brazil.

Markets had been scheduled to re-open on Friday after the week-long Lunar New Year holiday, but that was extended by the government to buy time in the fight against the virus.

Foxconn has closed its Chinese factories until at least mid-February, potentially affecting supply chains for tech companies that rely on it for everything from Apple's iPhones to flat-screen TVs and laptops. Deaths had stood at 17 and infections at 600 when Chinese markets last traded on January 23. Analysts are beginning to suspect the impact will be deeper than the hit delivered by the Severe Acute Respiratory Syndrome (SARS) outbreak in 2003.

"This is well beyond the band-aid fix, and if this deluge doesn't hold risk-off at bay, we are in for a colossal beat down", Stephen Innes of AxiCorp. said in a client note Sunday.

China Southern Airlines fell 2.99 percent to 4.22 yuan, and China Eastern Airlines lost 2.51 percent to 3.49 yuan. If the losses are sustained, it would be the biggest daily drop since 2015.

Just two weeks ago, the S&P 500 had closed at an all-time high, having climbed around 13 percent since early October. Volatility was running at 12-month lows and even a dust up between the USA and Iran didn't rock markets.

With the exception of Hong Kong, equity markets were down throughout the region.

Other reports by Click Lancashire

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