Chinese stocks collapsed on Monday (February 03) with hundreds of firms plunging by the maximum 10 percent as investors got their first chance in more than a week to react to a barrage of bad news from the spiralling coronavirus outbreak.
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. Hong Kong went into the break 0.09 percent, or 23.78 points, up at 26,336.41 on bargain-buying after being battered last week.
The scale of the plunge was remarkable even by the standards of China’s notoriously volatile share markets, indicating deep concern over the economic impact of the epidemic, which has now killed more than people SARS in 2003.
The last time Chinese indices had plunged in excess of eight percent in a day was when an equities bubble popped nearly five years ago. “Investor panic quickly spread across the board and will be dominating the market over the short term,” said Yang Delong, chief economist at First Seafront Fund.
More than 2,600 stocks fell by the 10 percent daily limit, according to Bloomberg financial data. The yuan also weakened more than 1.5 percent to around 7.02 per dollar.
Markets in the worlds second-biggest economy had closed on January 24 for the week-long Lunar New Year holiday, but in that time the viral epidemic that started in Wuhan has spread globally. They were scheduled to reopen on Friday but the government extended the holiday to help deal with the virus.
Stock markets worldwide have sunk as major corporate names froze or scaled back their Chinese operations, threatening global supply chains that depend heavily on the country. China’s central bank said it would pump 1.2 trillion yuan ($173 billion) into the economy on Monday to help stabilise markets.
Yang said an interest rate cut also is “urgent and necessary”. Volatility will reign until there are clear signs that the coronavirus is contained, analysts said. Travel and tourism shares plummeted after domestic and international travel curbs were imposed to slow the virus.
China International Travel Service fell 10 percent to 73.80 yuan shortly after the open.
Individual Chinese stocks can only move 10 percent in either direction each session before being suspended, a measure intended to limit volatility. Foxconn Industrial Internet, an arm of Taiwanese tech giant Foxconn, were also limit down at 18.00 yuan. 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 Apples iPhones to flat-screen TVs and laptops.
China Southern Airlines and China Eastern Airlines were also suspended after diving 10 percent. Consumer bellwether Kweichow Moutai, the worlds largest distiller and whose fiery liquor is a favoured Lunar New Year gift, fell 5.27 percent to 997.30 yuan.
Many healthcare stocks gained, however, as Chinese rush to stock up on face masks and other medical supplies. Shares in Shanghai No. 1 Pharmacy and China Meheco both were suspended after surging 10 percent.
The Peoples Bank of China (PBoC) said its market intervention was aimed at maintaining banking system liquidity and a stable currency market.
China’s economy is expected to take a clear hit from the crisis, which has brought industrial regions grinding to a halt. “The near-term impact on Chinese GDP growth is likely to be large,” Oxford Economics said in a research note.
“Considering the affected areas account for just over 50 percent of total Chinese output, we think this could lead China’s annual GDP growth to slow to just four percent in Q1,” it added — down from a previous forecast of six percent growth.
China’s benchmark iron ore contract declined by its daily limit of eight percent on Monday, while copper, crude and palm oil also sank by the maximum allowed, according to Bloomberg News.