Investors erased US$ 393 billion from China’s benchmark stock index on Monday, sold the Yuan and dumped commodities as fears about the spreading coronavirus and its economic impact drove selling on the first day of trade in China since the Lunar New Year.
A nearly 8% plunge on the Shanghai composite index was its biggest daily fall in more than four years. The Chinese Yuan blew past the 7-per-dollar mark and Shanghai-traded commodities from palm oil to copper hit their maximum down limits.
The wipeout came even as the central bank made its biggest cash injection to the financial system since 2004 and despite apparent regulatory moves to curb selling.
The total number of deaths in China from the coronavirus is steadily rising to 400, compared with 17 on Jan. 23, when Chinese markets last traded
“You wanted to know what a real decoupling from China might look like, or what a ‘What if everyone just stayed at home and didn’t buy anything?’ economic thought-experiment looks like? Well here you are, folks,” Rabobank strategist Michael Every said in an afternoon note.
Shanghai-traded oil, iron ore, copper and soft commodities contracts all posted sharp drops, catching up with sliding global prices.
The new virus has created alarm because it is spreading quickly, much about it is unknown, and authorities’ drastic response is likely to drag on economic growth.
“This will last for some time,” said Iris Pang, Greater China economist at ING.
“It’s uncertain whether factory workers, or how many of them, will return,” she said. “We haven’t yet seen corporate earnings since the (spread of the) coronavirus. Restaurants and retailers may have very little sales.”
More than 2,500 stocks fell by the daily limit of 10%. The Shanghai Composite closed down 7.7% at 2,746.6, its lowest since August and a modest recovery from early trade, when it was down nearly 9%.
The People’s Bank of China (PBOC) said the stocks plunge had irrational or even panic elements, triggered by herd behavior, in a newspaper commentary published after markets closed.
The sell-off cast a pall over Asia, though losses were contained because a slide had been expected. Hong Kong's Hang Seng, which shed almost 10% in two weeks, closed 0.2% firmer.
Amid the sell down, the PBOC had injected 1.2 trillion Yuan (US$173.81 billion) into money markets through reverse bond repurchase agreements, the largest such move since 2004, according to DBS analysts.
It also unexpectedly cut the interest rate on those short-term funding facilities by 10 basis points.