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China Shares Plunge Nearly 8% as Coronavirus Fears Grow

James Hyerczyk

The major Asia Pacific stock indexes were mostly lower on Monday, led by a steep drop in China as investors returned to the market following an extended holiday amid the rapidly worsening coronavirus outbreak. The resumption of trading on mainland China came after an extended Lunar New Year break amid an ongoing coronavirus outbreak that has taken more than 300 lives in the country so far.

On Monday, Japan’s Nikkei 225 Index settled at 22971.94, down 233.24 or -1.01, Hong Kong’s Hang Seng Index finished at 26356.98, up 44.35 or +0.17 and South Korea’s KOSPI Index closed at 2118.88, down $0.13 or -0.01%.

In Australia, the S&P/ASX 200 Index settled at 6923.30, down 93.90 or -1.34% and China’s Shanghai Index closed at 2746.61, down 229.92 or -7.72%.

$393 Billion Wiped Off China’s Stock Market Despite Government Support Moves

Investors erased $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, according to Reuters.

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 steep losses came even as China’s central bank made its biggest cash injection to the financial system since 2004 and despite apparent regulatory moves to curb selling.

More than 2,500 stocks fell by the daily limit of 10%. Furthermore, 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 the markets closed.

People’s Bank of China Injects Liquidity

In an effort to slow the price slide and restore confidence in the markets and the economy, the PBOC injected 1.2 trillion yuan ($173.81 billion) into money markets through reverse bond purchase 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.

Furthermore, the chance of a benchmark lending rate cut on February 20, the date of its next monthly fixing, has significantly increased, central bank advisor Ma Jun said.

In addition to the stimulus, China’s securities regulator moved to limit short selling and urged mutual fund managers not to sell shares unless they face investor redemptions, sources told Reuters.

Caixin Survey Shows China January Factory Activity Slowed to Five-Month Low

China’s factory activity expanded at its slowest pace in five months in January, even as an outbreak of a new virus added to risks facing the world’s second-largest economy, a private survey showed on Monday.

The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) eased to 51.1 from 51.5 in December, missing expectations but remaining above the 50-mark that separates growth from contraction for the sixth straight month. Analysts had expected a reading of 51.3.

This article was originally posted on FX Empire