Shanghai stocks, oil plunge on virus fears

Chinese equities plunged almost eight percent Monday as nervous traders returned from their extended Lunar New Year break, hit by fears that the deadly coronavirus could hammer the country’s economy.

The steep losses led another sell-off across Asia following a painful week for global markets with the virus death toll topping 360 people and more than 17,000 infected, and governments around the world banning flights to and from China.

Meanwhile, Brent crude -- the benchmark international oil contract -- fell by more than three percent in late European trading to under $55 per barrel -- on expectations that demand could slide as the virus hits economic output.

The main US oil contract, WTI, was also briefly under $50 per barrel.

“Traders are fearful that China’s demand for the energy will tumble,” said analyst David Madden at CMC Markets UK.

OPEC members and their ally Russia will convene a technical meeting this week to analyse falls in the oil price since the outbreak of a coronavirus epidemic, a source close to the cartel said on Sunday.

In foreign exchange, sterling slid more than 1.5 percent versus the dollar, hit by worries over post-Brexit trade deal negotiations after Britain’s exit from the European Union last Friday, dealers said.

The tumble in the pound helped to lift London’s benchmark FTSE 100 index.

Sterling’s slide is  “generally good for companies whose shares are priced in pounds but who earn in foreign currencies including the dollar”, noted Russ Mould, investment director at AJ Bell.

Elsewhere,  “Chinese stocks played catch-up... as its markets reopened after more than a week’s closure”, said Mould.

“While the scale of this movement is enormous in terms of daily stock market action, it essentially puts China’s market more in line with how the Hong Kong index has reacted in the past few weeks.” Analysts have warned that the virus outbreak could slash global growth this year, throwing a spanner in the works just as economies were showing signs of stabilising after more than a year of slowing.

Observers said that with China being a crucial part of the global trade infrastructure, other countries would also be badly hit, while major corporate names have frozen or scaled back their Chinese operations, threatening the global supply chain.

The World Health Organization last week invoked a global health emergency but stopped short of recommending trade and travel restrictions that could have had a bruising effect on China.

Still, JP Morgan Asset Management strategist Tai Hui remained relatively upbeat about the future.

“As the number of infections is still likely to rise in the weeks ahead, we would expect the Chinese onshore equity market to come under pressure,” he said in a note.

“That said, we still believe that economic activities should recover swiftly once the number of new cases comes under control, and subsequently market sentiment should also improve.” European stock indices held in positive territory throughout the day, while Wall Street rebounded following sharp losses on Friday on fears of the impact of the coronavirus on the global economy.

“The Dow Jones, as well as the S&P 500, have quickly crawled back a good chunk of the ground that they lost on Friday,” said CMC Markets’ David Madden, pointing out that better-than-expected manufacturing data had boosted sentiment.