Shanghai Composite index plunges 8.7% as market reopens

A man wearing a face mask walks past a bank electronic board showing the Hong Kong share index at Hong Kong Stock Exchange Wednesday, Jan. 29, 2020. Shares advanced in most Asian markets on Wednesday after a rebound on Wall Street that reversed most losses from a sell-off the day before. (AP Photo/Vincent Yu)

China’s Shanghai Composite index plunged 8.7% but then rebounded slightly as regulators moved to steady markets that reopened Monday from a prolonged national holiday amid news the outbreak of a deadly virus has spread further.

Other Asian markets also fell sharply, with Taiwan’s benchmark initially down 2.8%. The declines followed a day of bloodletting Friday on Wall Street.

After nosediving on the open, the Shanghai Composite was down 7.7% at 2,747.13, likely reflecting action by the central bank, which on Sunday announced it was injecting 1.2 trillion yuan ($173 billion) into the markets to ensure there would be enough liquidity.

Chinese authorities reported Monday that the number of people infected by the virus first found in Wuhan has risen above 17,000 as of Sunday night. The virus has killed more than 360 people, all but one in China.

While shares in many sectors fell, prices for some pharmaceutical companies hit their 10% upside limit in early trading. Shandong Lukang Pharmaceutical, Jiangsu Sihuan Bioengineering and Harbin Pharmaceutical Group Co. were among the limit-up companies. Major conglomerate New Hope Group plunged to the 10% downside limit, as did Dongfang Electric Co.

The benchmark for China’s smaller market, in Shenzhen, was down 7.8% at 1,695.36 by mid-morning.

Elsewhere in Asia, Japan’s Nikkei 225 index lost 1% to 22,971.13, while the S&P ASX/200 declined 1.6% to 6,902.10. In South Korea, the Kospi declined 0.6% to 2,105.46. However, Hong Kong’s Hang Seng, which has many mainland Chinese heavyweights, climbed 0.3% to 26,370.78.

“Sentiments remain very fragile as markets dynamically try to get a sense of when containment will catch up with contagion,” Mizuho Bank said in a commentary.

China’s central bank announced plans Sunday to inject 1.2 trillion yuan ($173 billion) into the economy to cushion the shock to financial markets from the outbreak of a new virus when trading resumed. The Lunar New Year holiday, usually a week long, was prolonged by three days as a precaution.

The People’s Bank of China announced several measures over the weekend aimed at stabilizing the economy as the impact of the virus spreads with cancelled flights, stepped up quarantines and other controls.

Worries over the potential harm to businesses and trade from the outbreak have triggered wide swings in share prices around the globe.

The central bank statement issued Sunday said the open market operations were aimed at ensuring sufficient liquidity.

In a separate statement Saturday, the PBOC said financial institutions should follow local quarantine regulations and try to minimize gatherings to reduce risks of spreading the virus. That includes allowing rotating shifts, working online from home and other strategies, it said.

Regulators have also urged banks and other financial institutions to boost lending and avoid calling in debts in areas severely affected by the pandemic.

Some cities, particularly the central Chinese city Wuhan where the disease first surfaced and cities nearby, are in lockdown. Shanghai authorities extended the Lunar New Year holiday until Feb. 9. Chinese universities and many schools remain closed for now.

The Shanghai Composite had fallen 2.8% to 2,976.53 on Jan. 23, its last day of trading before the Lunar New Year.

Chinese authorities have massive resources for intervening to staunch panic selling of shares and have deployed them in past times of crisis, including the global financial meltdown and the 2002-2003 outbreak of SARS, or severe acute respiratory syndrome. Most of the country’s largest companies and financial institutions are state-controlled.

A large share of the 1.2 trillion yuan to be injected into markets will go to meeting payment obligations falling due on Monday, analysts said.

But it’s still a massive amount of funding.

“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.

He noted that any major drop shortly after the markets reopen would be a “catch up.”

“It’s not the earthquake at the open but rather the aftershocks that will drive risk sentiment on Monday,” he said.

On Wall Street on Friday, the Dow skidded more than 600 points as the widening pandemic stoked fears of further travel restrictions and other uncertainties could dent global growth.

Technology companies, which do a lot of business with China, led the losses. Airlines fell after Delta and American suspended flights to and from China. The sell-off erased the S&P 500′s gains for January and gave the benchmark index its biggest weekly loss since August.

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.

Just two weeks ago, the S&P 500 had closed at an all-time high, having climbed around 13% since early October. A preliminary trade deal signed by the U.S. and China earlier in the month eased a big source of uncertainty in the markets. Volatility was running at 12-month lows and even a dust up between the U.S. and Iran didn’t rock markets.

Britain’s exit from the European Union on Friday barely registered, long having been taken into account. Then came the virus outbreak.

Markets around the globe have sold off on concerns about the potential economic impact of the outbreak. Hong Kong’s Hang Seng fell 6.7% last week and South Korea’s Kospi dropped 5.7%.

Other markets showed somewhat less turmoil on Monday. Benchmark U.S. crude oil shed 20 cents to $51.36 per barrel in electronic trading on the New York Mercantile Exchange. It lost 58 cents to $51.56 on Friday. Brent crude, the international standard, gave up 44 cents to $56.18 per barrel.

In currency trading, the U.S. dollar rose to 108.53 Japanese yen from 108.35 yen on Friday. The euro slipped to $1.1082 from $1.1095.


Source: Associated Press – ELAINE KURTENBACH