Published: Mon, February 03, 2020
Markets | By Otis Pena

Stocks plummet as markets reopen in China amid coronavirus outbreak

Stocks plummet as markets reopen in China amid coronavirus outbreak

Chinese equities plunged nearly 9% on Monday as nervous traders returned from their extended Lunar New Year break, hit by fears that the coronavirus, which has killed more people than SARS, could hammer the country's economy.

Today the Shanghai Composite index shed almost eight per cent of its value to hit a one-year low, according to Reuters calculations.

Chinese stocks closed lower with the Shanghai Composite down 7.7% and the SZSE Component down 8.3%.

The U.S. stock market, which had calmly been setting record after record, suffered its worst January since 2016 and its first monthly loss since August.

The losses on each index were the biggest since the 2015 'Black Monday, ' wiping out a combined $445 billion off the market.

"As will (Association of Southeast Asian Nations) countries that have built significant trade ties with China, even more so those countries that are tourist destination spots and service providers to Chinese tourists". The benchmark iron ore contract in Dalian fell by its daily limit of 8%. Copper, crude and palm oil also sank by their limit.

China's central bank said it will inject 1.2 trillion yuan (US$173.8 billion) worth of liquidity into the markets via reverse repo operations tomorrow, as the country battles a new coronavirus outbreak.

They also allowed insurers with ample solvency to "appropriately raise their investment" in equities from the current limit of 30% of assets.

But while stock markets reopened, most provinces have extended the Lunar New Year holiday to try and contain the virus, with workers in Hubei not scheduled to return to work until after Feb 13.

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Shanghai-traded commodities also plunged, catching up with losses on global markets.

Markets around the globe have sold off on concerns about the potential economic impact of the outbreak.

"It's likely more intervention will come if required in the days ahead", said Deutsche Bank strategist Jim Reid. "That said, we still believe that economic activities should recover swiftly once the number of new cases comes under control, and subsequently market sentiment should also improve". The number of new confirmed infections in China rose by 2,829, bringing the total to 17,205.

The outbreak has only worsened since then.

"As most employees won't return to work until February 9, the output losses are likely to be larger than expected, and incoming economic activity data will continue to prompt the authorities to take more actions in order to reduce the adverse impact of the Wuhan coronavirus on the economy".

The World Health Organization declared last week that the rapid spread of the virus is a public health emergency of worldwide concern.

Economists at Citigroup said the steps taken by Chinese authorities were "unlikely to be sufficient to curtail a sharp downturn in (the first quarter)", Reuters reported.

Citi revised its full-year forecast for China's GDP growth to 5.5 percent in 2020 from 5.8 percent.

Additional reporting Yusho Cho in Shanghai.

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