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Asian Markets Close the Week Sharply Lower Amid Coronavirus Fears

James Hyerczyk

The major Asia Pacific stock indexes were hit hard last week as concerns over the rapid spread of a virus from China prompted the World Health Organization (WHO) to declare a global emergency after assessing the severity of the outbreak.

With the death toll rising in China, the WHO director-general on Thursday said the greatest concern was the virus’ potential spread to countries with weaker healthcare systems, compounded by cases of person-to-person transfer of the virus outside China.

For the week, Japan’s Nikkei 225 Index settled at 23205.18, down 622.00 or -2.61%. South Korea’s KOSPI Index finished at 2119.01, down 127.12 or -5.66% and Hong Kong’s Hang Seng Index closed at 26312.63, down 1637.01 or -5.86%.

Australia’s S&P/ASX 200 Index settled at 7017.20, down 73.30 or -1.03%. Australia is often viewed as a proxy to China’s economy because of the amount of business the two countries do with each other.

The stock market in China was closed all week for the Lunar New Year holiday. Chinese officials also extended the shutdown because of the coronavirus outbreak. When it opens on February 3, traders can expect a 5-10% plunge based primarily on Hong Kong’s weak performance last week.

WHO Declares Global Emergency

The new coronavirus was declared a global emergency by the World Health Organization (WHO), as the outbreak continues to spread outside China.

“The main reason for this declaration is not what is happening in China but what is happening in other countries,” said WHO chief Tedros Adhanom Ghebreyesus.

The concern is that it could spread to countries with weaker health systems.

Speaking at a news conference in Geneva, Dr. Tedros described the virus as an “unprecedented outbreak” that has been met with an “unprecedented response.”

He also praised the “extraordinary measures” Chinese authorities had taken, and said there was no reason to limit trade or travel to China.

“Let me be clear, this declaration is not a vote of no confidence in China,” he said.

Investors Flee Companies with Close Links to China

Chipmakers, cruise lines, airlines and casino operators took some of the hardest hits in stock trading last week as investors fled companies with close links to China.

Wuhan is a major chip memory design and manufacturing site in China, and the outbreak will have an impact on memory chips and display makers.

Chinese stocks traded in the U.S. were also under pressure last week. These included Alibaba Group Holding Ltd., Baidu Inc., and Tencent Holdings Ltd.

Casino stock Wynn Resorts was downgraded by Bank of America to neutral from buy because of growing concerns about the virus impact on the company’s Macau operations. Wynn’s casino resorts include Wynn Macau and the Wynn Palace in Macau.

Cruise-ship operators including Royal Caribbean and Carnival Corp. face risks to their earnings as trip cancellations and travel fears mount. Analysts also said the outlook for online travel agencies are at risk.

China’s Factory Output Cools

China’s factory activity cooled slightly in January, although officials and analysts warned the drop does not account for the coronavirus outbreak, which is set to test an economy already growing more slowly.

The official purchasing managers’ index (PMI) dropped to 50.0, the National Bureau of Statistics (NBS) said on Friday, having remained steady at 50.2 for the last two months of 2019 following a reading of 49.3 in October.

But the NBS warned that because the survey was conducted before January 20, “the impact of pneumonia caused by the new coronavirus has not yet (been) fully manifested.”

“Future trends will need further observation,” it added in a statement.

“I would disregard today’s release,” said Raymond Yeung, chief economist for Greater China at ANZ. “The figure certainly overrates the economic outlook as it does not reflect the interruption due to the outbreak.”

This article was originally posted on FX Empire