Stocks

Asian stocks bounce as investors welcome China's virus response

Reuters Singapore | Updated on January 22, 2020 Published on January 22, 2020

Japan's Nikkei, Korea's Kospi index and Hong Kong's Hang Seng all rose by more than half a percentage point after heavy drops on Tuesday. File Photo   -  Bloomberg

The Shanghai Composite index recovered from an early 1.4 per cent drop to trade 0.01 per cent higher.

The Asian stock markets recovered ground on Wednesday as China's response to a virus outbreak tempered some fears of a global pandemic, although Shanghai shares initially slipped amid worries about a hit to domestic demand and tourism.

Worries about contagion, particularly as millions travel for Lunar New Year festivities, have knocked stocks from record peaks.

The outbreak has revived memories of the Severe Acute Respiratory Syndrome (SARS) epidemic in 2002-03, a coronavirus outbreak that killed nearly 800 people and hurt world travel.

Yet this time, China's response and candour - in contrast to the initial cover-up of the SARS outbreak - have helped reassure investors concerned about the possible global fallout.

China's National Health Commission said on Wednesday there were 440 cases of the new virus, with nine deaths so far. Measures are now in place to minimise public gatherings in the most-affected regions.

The Shanghai Composite index recovered from an early 1.4 per cent drop to trade 0.01 per cent higher. Markets elsewhere advanced, while safe assets such as gold, bonds and the Japanese yen handed back some of Tuesday's gains.

The MSCI index of Asia-Pacific shares outside Japan rose 0.71 per cent, recouping almost half of Tuesday's drop. Japan's Nikkei, South Korea's Kospi index and Hong Kong's Hang Seng all rose by more than half a percentage point.

Australia's S&P/ASX 200 shrugged off worries to hit a fresh record high. E-mini S&P 500 futures rose 0.5 per cent and EUROSTOXX 50 futures advanced 0.4 per cent.

“The call here is not that the virus is done or nipped in the bud by any means,” said Kay Van-Petersen, global macro strategist at Saxo Capital Markets.

“But there have been no big further reported outbreaks, and the response from the Chinese authorities has been very, very positive ... China is 1.4 billion people. This is not the first time they're tackling a bug that's gotten out of hand.”

The outbreak, from its origin in Wuhan, China, has reached the US, Thailand, South Korea, Japan and Taiwan. Cases have been confirmed in 13 Chinese provinces.

The World Health Organization (WHO) meets later on Wednesday to consider whether the outbreak is an international emergency.

 

SARS FLASHBACK

Airlines, other travel-exposed stocks and retailers vulnerable to shifts in consumer sentiment have borne the brunt of selling in the past two days, along with the Chinese yuan.

MSCI's airline industry index posted its biggest daily drop in more than three months on Tuesday and shares in the industry were still falling on Wednesday.

“While details on the coronavirus are scant, we reckon that the SARS period could offer some clues as to how markets could pan out,” said analysts at Singapore's DBS Bank.

“The trends are clear: Yields and stock prices fell in the first few months of the SARS outbreak and rebounded thereafter.”

So far, the yield on US 10-year government bonds has stabilised after Tuesday's drop, sitting a little firmer at 1.7883 per cent.

Spot gold also gave back some gains to trade 0.3 per cent weaker at $1,553.22 per ounce.

In currencies, the safe-haven yen eased slightly from the one-week high it touched overnight, although the yuan eased slightly in the onshore market to 6.8997 per dollar.

Oil prices also settled back as traders figured a well-supplied global market would be able to absorb disruptions that have cut Libya's crude production to a trickle.

Brent crude was down 0.31 per cent at $64.39 a barrel and US oil fell 0.43 per cent to $58.13 a barrel.

 

Published on January 22, 2020
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