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Shanghai shares, yuan swoon, Hong Kong plummets as global virus panic spreads

Reuters | Updated: 13-03-2020 10:30 IST | Created: 13-03-2020 10:30 IST
Shanghai shares, yuan swoon, Hong Kong plummets as global virus panic spreads

Chinese shares, the yuan and government bond futures fell on Friday amid a global market meltdown triggered by intensifying fears over the global spread of the coronavirus.

The benchmark Shanghai Composite Index sank 3.32% by the midday break, down nearly 10% from its mid-January highs, while Chinese blue-chip shares lost 3.53%. Shares in Hong Kong fared worse, with the Hang Seng Index dropping nearly 7% at one point. It was 5.78% lower at midday, on track for its worst week since October 2008 in the depths of the global financial crisis.

Chinese A-shares have fallen less than their global counterparts in recent weeks as the spread of the coronavirus has slowed domestically and many factories have slowly resumed work after lengthy virus-related stoppages. Wuhan, ground zero of the new coronavirus outbreak, reported just five new cases on Friday, while no locally transmitted infections were reported in the rest of the country.

The virus is now spreading rapidly in many of China's trading partners, however, threatening to shock global business and consumer spending directly and through increasingly volatile financial markets. In the currency market, the yuan weakened 0.4% as investors scrambled for the safety of U.S. dollars.

The People's Bank of China set its daily fixing for the yuan's trading band at 7.0033 per dollar, 0.56% weaker than the previous fix of 6.9641. It was the biggest one-day weakening in percentage terms since Feb. 4, and much weaker than market expectations. The onshore yuan opened at 7.0300 per dollar and was changing hands at 7.0046 as of 0418 GMT.

Ji Tianhe, head of FXLM Strategy for Global Markets China at BNP Paribas in Beijing, said the global market crisis was now worrying local investors more than coronavirus risks at home. "The yuan is likely to stabilise in the medium term as it does not have too much downside risk for the time being. Companies have gradually resumed business. However, situations overseas are yet to see a turnaround, which should rather provide some support for the yuan," Ji said.

A chief dealer at a Chinese bank said the yuan's short-term outlook will depend on major economies' policy direction. A growing number of countries and central banks are announcing emergency fiscal and policy support measures to cope with the pandemic. "Most central bank policy measures should be confirmed this week and next," he said.

Some analysts expect another cut to China's benchmark lending rate (LPR) next Friday, following various easing measures taken since late January. Chinese 10-year government bond futures lost their early composure and gave into selling pressure as market ructions spooked traders. The most-traded contract, for June delivery was last down 0.32% at 101.160.

"There are huge doubts about the ability of Europe and the U.S. to control the outbreak, and a flight to liquidity has dragged all assets lower," said a senior trader at a brokerage in Shanghai.


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