Asian shares higher after selloffs spurred by Chinese virus

AP – Shares mostly rose in early Asian trading yesterday after a slide in United States (US) stocks overnight as a virus outbreak in China rattled global markets.

Japan’s Nikkei 225 index climbed 0.6 per cent to 24,013.15 and the Kospi in South Korea surged 0.8 per cent to 2,256.95. In Hong Kong, the Hang Seng jumped 0.8 per cent to 28,216.78. The S&P ASX/200 in Sydney gained one per cent to 7,134.60, while the Shanghai Composite index edged 0.2 per cent lower to 3,045.03. Shares fell in Singapore and Malaysia but rose in Indonesia.

There was little regional news apart from the virus to drive trading, though South Korea reported better than expected economic growth in the last quarter of 2019. It’s GDP rose 1.2 per cent from the previous quarter and better than the previous quarter’s 0.4 per cent growth. Economists attributed the stronger growth to increased government spending, reduced trade friction and a recovery in demand for semiconductors.

“It continues a noticeable trend of improving data in Asia over the past few months, which does imply a recovery is underway,” Jeffrey Halley of Oanda said in a commentary. However, he noted that a “soft underbelly” of risk remains, as evidenced by the worldwide retreat by markets on Tuesday as authorities confirmed the new coronavirus can be spread between humans and not just between animals and humans as earlier suspected.

Wall Street’s sell off on Tuesday snapped a three-day winning streak by the S&P 500. Investors worry that the new coronavirus spreading in the world’s second-largest economy could hurt tourism and ultimately economic growth and corporate profits.

Currency traders at the foreign exchange dealing room of the KEB Hana Bank headquarters in Seoul, South Korea. PHOTO: AP

That led many to shift into bonds and defensive sector companies, especially in health-related industries. Yesterday, Chinese authorities reported the number of people confirmed infected had risen to 440, with nine deaths.

The number of cases of the virus first reported in the central Chinese city of Wuhan jumped just as Chinese were preparing to make billions of trips for the Lunar New Year travel season.

A US citizen who recently returned from China was diagnosed with the new virus in the Seattle area, making the US the fifth country to report a case, following China, Thailand, Japan and South Korea.

Within the S&P 500, stocks of US companies that cater to Chinese tourists had some of the biggest losses, along with general travel companies and airlines. Along with banks, industrial and energy stocks accounted for a big share of the selling. Those losses outweighed gains in real estate stocks, utilities and household goods makers. Traders also shifted money into US government bonds, sending yields lower.

“From an investment standpoint, the risk with any virus is in the scope of its economic impact, and the mere fact that this has spread from China overnight to the US so quickly reinforces the idea that the negative fallout could be global rather than local,” said Managing Director of Global Markets Research for FTSE Russell Alec Young.

The S&P 500 fell 0.3 per cent to 3,320.79. It had fallen as much as 0.4 per cent earlier in the day. The Dow Jones Industrial Average lost 0.5 per cent, to 29,196.04. The Nasdaq composite slid 0.2 per cent, to 9,370.81. Smaller-company stocks took the brunt of the selling. The Russell 2000 index lost 0.8 per cent, to 1,685.90.

To cope, investors were looking at playbooks for past outbreaks, such as SARS in 2002-2003, where airlines, railways and other transportation companies saw their stocks slide the most, followed by retailers and hospitality companies, according to strategists at Jefferies.

Other travel companies also slumped on worries that customers may stay away due to virus fears. Royal Caribbean Cruises fell four per cent, United Airlines lost 4.4 per cent, and Booking Holdings dropped 3.1 per cent. Boeing shares slid 3.3 per cent after the aircraft manufacturer said that it doesn’t expect federal regulators to approve changes to the grounded 737 MAX until this summer — several months longer than the company was saying just a few weeks ago.

Bond yields fell sharply, with the yield on the 10-year Treasury note falling to 1.79 per cent from 1.83 per cent late last Friday. That helped lift shares in homebuilders broadly higher, as a decline in the 10-year Treasury yield tends to pull mortgage rates lower. DR Horton climbed 2.3 per cent. Real estate investment trusts and utilities stocks rose as the decline in bond yields made dividend-paying stocks more attractive to income investors.

American Tower rose 1.4 per cent, while Edison International gained 1.6 per cent. Headlines about the spreading coronavirus gave investors an excuse to take profits following the market’s recent record-setting run. The benchmark S&P 500 hasn’t had a single-day drop of more than one per cent since last October.

“Investors have shown a lot of optimism, and that might make some a little bit skittish,” said Investment Strategist at Baird Willie Delwiche. “Valuations are elevated. In this sort of environment, I don’t think it takes much of a headline to trigger a reaction.”

US companies are in the midst of reporting their earnings results for the last three months of 2019, and early indications are encouraging. Less than a 10th of S&P 500 companies have reported their results so far, but of them, 72 per cent topped analysts’ forecasts for profits. Those forecasts were low, to be sure, with analysts saying S&P 500 profits fell last quarter for the fourth consecutive time, according to FactSet.

Benchmark US crude fell 24 cents to USD58.14 per barrel in electronic trading on the New York Mercantile Exchange. It dropped 20 cents on Tuesday to settle at USD58.38 a barrel. Brent Crude, the international standard, dropped gave up 22 cents to USD64.37 per barrel. Overnight it lost 61 cents to close at USD64.59 a barrel.

Gold fell USD6.20 per ounce to USD1,551.70. Silver fell eight cents to USD17.73 per ounce and copper fell 5 cents to USD2.80 per pound.

The dollar rose to JPY110.03 from JPY109.86 on Tuesday. The slipped to USD1.1082 from USD1.1084.