It's all a bit of drag happening with Asian stocks, hit by the virus and now, by an oil shock. File picture of traders at Hong Kong stock exchange. Image Credit: AFP

Shanghai, Hong Kong: China and Hong Kong shares slumped on Monday as fears over the economic impact of the spreading coronavirus epidemic and a sudden plunge in oil prices battered global financial markets.

The CSI300 index fell 2.8 per cent to 4,024.46 points by the end of the morning session, while the Shanghai Composite Index lost 2.4 per cent, to 2,961.29. The Hang Seng index dropped 3.5 per cent to 25,230.55 - the lowest since August 15, 2019 - while the Hong Kong China Enterprises Index lost 3.8 per cent to 10,056.49.

Energy stocks dragged the most after Saudi Arabia slashed crude oil prices, with the energy index in Hong Kong falling by more than 10 per cent.

Oil shock

“Fears over the global coronavirus contagion persisted, while the oil plunge was also a reflection of worries over the global economic momentum,” said Zhou Longgang, an analyst with Huachuang Securities.

“China has more fiscal policy room to hedge the impact from the virus outbreak, which is why the A-share market is relatively stronger, as a wave of rate cuts by central banks could have limited impact on global capital markets and economy.”

Analysts also argued a firmer yuan and the historically high interest rate spreads between China and the US could help bolster the attractiveness of Chinese assets.

A continued drop in new cases added to optimism that the virus spread has been brought under control in the country.

China gets a break

Mainland China - excluding Hubei province, the epicentre of the coronavirus outbreak - reported no new locally transmitted cases on Sunday for the second straight day, as authorities remained on alert for infections arriving from abroad.

The latest dismal data reinforced expectations that Beijing would take more proactive measures to shore up the world’s second-largest economy.

China’s exports contracted sharply in the first two months of the year, and imports declined, as the health crisis triggered by the coronavirus outbreak caused massive disruptions to business operations, global supply chains and economic activity.

“A-share market is still very locally driven. Local investors feel they have experienced the worst and the government is going to implement easier fiscal, monetary policy and help the domestic economy to recover,” said Khiem Do, head of Greater China Investments at Barings.

Protective measures

Chinese policymakers have implemented a raft of measures to support an economy jolted by the coronavirus, which is expected to have a devastating impact on first-quarter growth.

Chinese treasury bonds surged as investors sought safe-haven investments, pushing futures sharply higher. The most-traded contract for Chinese 10-year treasury bonds, for June delivery, jumped 0.73 per cent higher to 102.195, the highest level for 10-year treasury futures since at least 2015, according to Refinitiv data.

The rush into bonds depressed yields, with traders quoting the yield on 10-year Chinese government bonds at 2.5125 per cent, the lowest since June 2002.