Daily Management Review

Deadly virus outbreak in China scares investors away


The outbreak of the new human-to-human coronavirus has dampened investor enthusiasm for the Chinese stock market, which previously had the fastest growth in recent years. Among the main victims are shares of consumer market companies, tour operators and airlines.

Kristoffer Trolle via flickr
Kristoffer Trolle via flickr
The FTSE China A50 stock index, calculated by the market capitalization of the 50 largest companies in China, showed the strongest drop in the last six months on the morning of January 21, down more than 1.7%, Bloomberg writes. Among the leaders of the fall were the shares of consumer market companies: investors sold securities of the largest producers of alcoholic beverages Wuliangye Yibin and Kweichow Moutai, as well as the tour operator China International Travel Service. The yuan fell by 0.5%.

The panic was caused by the new information that the coronavirus detected in China is transmitted from person to person. This was announced on Monday by the expert committee of the State Committee on Health Care of China. The situation is complicated by the fact that at the end of the week, January 25, China will celebrate the New Lunar Year. This is the peak time for consumer spending and travel. 

Traders, according to Bloomberg, are getting ready for the fact that because of the outbreak of coronavirus, Chinese will be less likely to leave their homes during the holidays. This means sale of shares in airlines, casinos and film producers. 

Concerns of investors were reflected in the European market, writes Reuters. European index STOXX 600 on January 21 fell by 0.7%. The decline in European stock prices was the sharpest in the last three weeks, writes Reuters. Securities of European airlines flying long distances, including Air France, Lufthansa and the owner of British Airways, IAG, fell by almost 2%. Also among the most affected were European manufacturers of luxury goods oriented to the Chinese consumer, including LVMH, Kering, Hermes and Burberry. “An outbreak of coronavirus could cause a shock decline in mass demand for services, primarily travel,” said AxiCorp market strategist Stephen Innes.

Investors fear that the story of 2002-2003 will repeat when the outbreak of SARS, which first appeared in China, claimed the lives of 774 people around the world, Reuters writes. According to Bloomberg, this holds back investor enthusiasm for the Chinese stock market. Prior to that, it showed the fastest growth in recent years. Earlier, amid the Beijing-Washington trade deal and statistics on stabilizing the Chinese economy, the optimism of analysts who advised buying Chinese assets peaked since the end of 2014, Bloomberg writes.

After several months of rush demand, by the middle of the day on January 21, foreigners sold shares of companies registered in mainland China for a net 5.1 billion yuan ($ 740 million), the highest figure since the beginning of August 2019. Analysts doubt that markets may continue to grow after a week-long hiatus caused by the Chinese New Year, Bloomberg writes.

source: forbes.com, reuters.com