Chinese stocks suffer worst day since 2015 on coronavirus fears

Chinese stocks suffer worst day since 2015 on coronavirus fears

Market closes down 7.9% as Hong Kong closes most border crossings to mainland

Chinese stocks tumbled as traders returned from an extended lunar new year holiday, with the CSI 300 index of Shanghai- and Shenzhen-listed equities falling as much as 9.1 per cent on Monday to mark the worst opening in nearly 13 years.

The drop came despite the central bank pumping Rmb1.2tn ($171bn) in additional liquidity into the financial system — its biggest one-day open market operation since 2004 — to help cushion the blow of the deadly coronavirus outbreak.

The benchmark index closed 7.9 per cent lower, marking its worst day since August 2015, and more than four-fifths of listed companies were down by the maximum 10 per cent daily limit, according to data provider Wind. The CSI 300’s fall wiped off about $358bn in stock market capitalisation, according to a Financial Times estimate based on Bloomberg data.

The brutal day for markets came as Hong Kong announced it would close 10 of its 13 border crossings with mainland China as it tries to halt the spread of the coronavirus outbreak that started in the city of Wuhan and extended worldwide.

Carrie Lam, the territory’s chief executive, said the closure would not include Hong Kong’s airport, though the number of flights to the mainland would be reduced. She said the port at Shenzhen Bay and the bridge connecting Hong Kong to Macau would also remain open.

China reported 17,205 confirmed cases of the coronavirus and 361 deaths as of the end of Sunday. The number of infections exceeds the total during the outbreak of severe acute respiratory syndrome, or Sars, in 2002-2003, which caused months of market turbulence in China.

The sell-off was contained to mainland China as traders there caught up with the falls across global stock markets over the past 10 days.

Other Asian equities were more stable, with Japan’s Topix falling 0.7 per cent. Equities notched moderate gains in Europe, where the Stoxx 600 index rose 0.1 per cent, after falling 3 per cent last week on escalating concerns over the virus’s economic impact.

The onshore renminbi weakened 1.2 per cent to Rmb7.021 per dollar, falling back through the key 7.0 threshold and on track for its worst day since US-China trade tensions escalated sharply in May 2019. The less-regulated offshore rate was 0.3 per cent weaker at Rmb7.0188 against the dollar.

One trader at a brokerage in Shanghai said there were signs the so-called national team of Chinese state-run institutional investors was buying stocks to help underpin the market.

China’s securities regulator also told mutual funds to limit net daily sales of large-cap stocks to Rmb100m and sales of small-cap stocks to Rmb10m, according to a Shanghai-based fund manager. “Our job is to keep panic selling to a minimum level,” the fund manager said.

The People’s Bank of China also cut its seven- and 14-day reverse repo rates by 10 basis points each shortly after markets opened on Monday to 2.4 per cent and 2.55 per cent, respectively. That lowered the cost of short-term loans from the central bank and boosted interbank liquidity through the seven-day rate for the first time since November.

Iris Pang, Greater China economist at ING, said the PBoC had “done its part to limit market chaos” on Monday. “How long the virus will last is the key threshold for gauging the situation,” she said.

Investors are concerned that the coronavirus epidemic will hit China’s economy, which is growing at its slowest rate in 30 years. Li-Gang Liu, chief China economist at Citi, forecast that first-quarter growth would slow to 4.8 per cent. The economy expanded 6.1 per cent in 2019.

“It is unlikely the economy will experience a quick rebound once the outbreak is under control,” he added, pointing to the greater contribution of services to Chinese growth compared with the deadly Sars outbreak in 2003.

But François Perrin of East Capital noted “extremely strong” northbound buying of onshore equities via Hong Kong’s stock connect programmes with Shanghai and Shenzhen. He said this was a sign that some foreign investors were betting the market was close to bottoming out though Chinese institutional buyers could also be driving some of that buying.

Prices of commodities tied to China’s economic outlook tumbled, including iron ore, which was down by 8 per cent in Dalian, and copper, which fell 6.5 per cent in Shanghai. Onshore crude oil futures in Shanghai fell 7.3 per cent.

Brent crude, the international oil benchmark, slid almost 1 per cent to $56.09 a barrel.

China’s markets were shut all of last week for an extended lunar new year holiday. Hong Kong’s Hang Seng China Enterprises index, which tracks Chinese companies listed in the city, finished last week down 6.7 per cent.

The HSCEI finished down 0.3 per cent on Monday, while Hong Kong’s Hang Seng index shed 0.2 per cent.

 

Additional reporting by Alice Woodhouse in Hong Kong

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