Friday, 31 January 2020

Investors flee Hong Kong stocks as coronavirus death toll rises 
China-focused shares in the city have experienced their worst week in almost 2 years 

Chinese stocks in Hong Kong suffered their worst weekly performance in almost two years as the death toll from the coronavirus outbreak rises. The Hang Seng China Enterprises index — which tracks mainland Chinese companies listed in Hong Kong — has fallen 6.7 per cent this week, its steepest decline since February 2018, as investors dumped shares.  Concern among investors about the contagion has grown in recent days, with the number of infections in China having surpassed the global total from the deadly Sars epidemic in 2002-2003.

 Traders are now bracing for a sharp sell-off when equity markets in the mainland Chinese cities of Shanghai and Shenzhen return from an extended lunar new year holiday on Monday. When they “reopen the market [it] is going to be quite harsh . . . The last thing [the Chinese government] really needs is for the stock market to really crash out”. said Andrew Sullivan, Hong Kong-based director at broker Pearl Bridge Partners. More than 9,600 people in China have now been infected with the virus, which originated in the central Chinese city of Wuhan. It has since spread to other countries, including Thailand, Australia and the US.

The first reported cases in the UK were confirmed on Friday. All of the 213 people who have died so far have been in China.  As well as battering equity markets, the contagion has also raised fears over its impact on China’s economic growth, already at a three-decade low. Those concerns have fed through to the price of the agricultural commodities of which China is a significant consumer.  The price of Chicago-traded soyabean futures has fallen 6.6 per cent in January, the worst monthly performance in almost 18 months. Frank Benzimra, an Asia strategist at investment bank Société Générale, said the decline underscored investors’ concerns about Chinese difficulties meeting its commitment to import more agricultural products from the US. The agreement is a key part of the so-called “phase one” trade deal reached between Washington and Beijing last month. “How China will be able to import $200bn in additional products from the US in the next two years . . . that could be an important question for the global economy,” Mr Benzimra said.

The rout in Asian equities this week has also resulted in investors seeking out corners of the market that stand to benefit from the epidemic. At least eight Hong Kong-listed pharmaceutical companies have notched up at least double-digit gains on the expectations of higher demand for their medicines. China Health Group, an obscure small-cap listed in the city, has soared more than 1,600 per cent since Monday. The pharmaceutical manufacturer said a week ago that one of its drugs had been earmarked by China’s state health commission for use in its response to the coronavirus outbreak. Its market capitalisation hit $246m on Friday, up from just $13m at the start of the week.  Extrawell Pharmaceutical and China NT Pharma have jumped 173 per cent and 50 per cent, respectively. The gains for these stocks were “certainly overdone” given the uncertainties surrounding the outbreak and the time needed to roll out any potential treatments, said Mr Sullivan. “People are clutching at straws,” he added.

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