Hong Kong stocks plunged on Tuesday, with all 50 constituents of the benchmark index ending in the red, as a ratings downgrade and news that a new virus from the mainland is spreading through human contact spooked investors.
The Hang Seng Index, which has been buoyed over the past weeks by the initial trade agreement between China and the United States, lost more than 800 points to close 2.81 percent lower at 27,985.33. The gauge for H-shares fell 3.19 percent to 361.36.
Market turnover reached HK$132.8 billion.
The new coronavirus, which was first detected in Wuhan, the capital of central China’s Hubei province, has killed four people so far. It has spread to Beijing, Shanghai and other cities, and similar cases were reported in Thailand, Japan and South Korea.
China’s National Health Commission confirmed on Monday that the virus, which causes a type of pneumonia, can pass from person-to-person, the official Xinhua news agency said.
The new virus broke out just ahead of the week-long Lunar New Year holiday.
“The ultimate fear is that this may spread with the tremendous human flow during the holiday,” said Alex Wong, managing director at Ample Finance in Hong Kong. “The selling originated in travel-related stocks and is now spreading out.”
The Shanghai Composite Index ended down 1.4 percent at 3,052.14, hitting its lowest point so far this year.
Credit rating agency Moody’s on Monday downgraded Hong Kong’s rating to “Aa3” from “Aa2”, saying its view on the strength in Hong Kong’s institutions and governance is “lower than previously estimated”.
The agency, however, moved its outlook to stable from negative.
“The absence of tangible plans to address either the political or economic and social concerns of the Hong Kong population that have come to the fore in the past nine months may reflect weaker inherent institutional capacity than Moody’s had previously assessed,” the agency said.
Shares of airlines, cinema and casino operators fell. But drugmakers across Chinese exchanges gained.
Remarks by President Xi Jinping to make curbing the outbreak a top priority drew investors’ attention to the depth of the crisis, adding to selling pressure, said an onshore-based broker.
The virus evoked memories of the 2002/03 outbreak of Severe Acute Respiratory Syndrome (SARS), which also originated in China and killed hundreds globally.
But Zhang Qi, a Shanghai-based analyst at Haitong Securities, said the Wuhan virus does not yet warrant a sell-off.
“We have more experience in dealing with diseases,” he said. “We will need to watch whether it spreads further, but so far the scale is not that big.”
Risk-off vibes also pushed the Chinese currency lower.
The onshore yuan lost about 0.4 percent to 6.8973 per dollar. It fell as much as 0.5 percent in offshore trading – past the 6.9 per dollar handle for the first time in almost a week.
The currency was on a tear earlier this month as China pledged to refrain from competitive devaluation, in a major de-escalation of trade tensions with Washington.
“Currently, [the Wuhan] virus might be the only reason explaining why market sentiment has changed all of a sudden,” a trader at a foreign bank in Shanghai said of the yuan’s U-turn.
Several traders in Shanghai said the trade deal-inspired appreciation was overdone, while noting that dollar demand usually rises among Chinese households and companies near the Lunar New Year for payments and overseas trips.
“Such purchases were held as the yuan kept strengthening in the last few weeks. And these pressures were released today,” said one of the traders.
Mounting concerns about the new coronavirus have spread across Asian markets, with the Nikkei losing 0.9 percent, and were being carried over to Europe. With Reuters
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