(Bloomberg) — It could have been a lot worse for Hong Kong’s big market reopen as investors sought to gauge the widening impact of the coronavirus on China’s economy.
The Hang Seng Index fell as much as 3% Wednesday on the first day of trading after the Lunar New Year. Though that was briefly its worst slide on a closing basis since October 2018, the index steadied to end the day 2.8% lower — matching its loss from Jan. 21. Meanwhile, the offshore yuan strengthened 0.1% to 6.9587 per dollar.
While the stock declines were steep — especially for landlords, travel firms and casinos — they were by no means unusual for a market that’s been walloped by trade tensions and violent protests in the past year. Before today, the Hang Seng Index had on 20 occasions closed at least 1.5% lower since the start of 2019, compared to just 10 times for the S&P 500 Index. A 6.5% loss in FTSE China A50 Index futures since Friday had also set traders up for a more painful reopen.
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Traders said higher-than-average volume helped limit volatility, despite trading links with onshore markets being shut due to the extended holiday in mainland China. It marked the first time since Friday morning that the city’s traders could catch up with the risk-off sentiment that has dominated global markets. For some, that meant buying stocks on the cheap on speculation that the economic impact from the virus outbreak will be contained. For others, that’s still a dangerous bet to make.
“It shows that there is still a group of investors who might be more optimistic,” said Kenny Wen, wealth management strategist at Everbright Sun Hung Kai Co. “The index may find some support around 27,000 first. But I think buying at this level is a bit risky, because the number of cases is likely to keep rising.”
Losses were also capped by a rebound in U.S. markets overnight, which helped stoke a 1.3% gain in FTSE China A50 Index futures. Hong Kong traders had been off their desks since before reported cases of the novel coronavirus surged globally and the number of confirmed deaths in China rose by more than threefold. Mainland Chinese markets won’t reopen until next week.
“The unpredictability part is the key source of stress in the market,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp. “The next few days to early February will be critical. If we are able to keep cases outside Hubei province low, this means the city lockdown works and may help alleviate the concern.”
Travel and consumer-related stocks were among the worst hit on Wednesday as people in China increasingly stay at home during what is usually a peak spending period. Macau casinos Galaxy Entertainment Group and Sands China Ltd. fell at least 5% after China said it will stop issuing travel permits for mainland citizens to visit the city. Cathay Pacific Airways Ltd. and China Southern Airlines Co. lost at least 3%, while Alibaba Pictures Group Ltd. slumped 9.5% as cinemas closed across the country.
Financial markets in China will reopen on Monday after the central government extended the Lunar New Year holidays in the mainland. China pledged to provide abundant liquidity for money markets and urged investors to evaluate the impact of the coronavirus objectively. Some 6,000 people have been infected in China, and at least 132 have died. Hong Kong has reported ten confirmed cases.
Along with stocks, the People’s Bank of China confirmed that interbank, bond, bill, gold and currency markets will reopen Feb. 3.
“We expected to see strong economic momentum in China before, but now the pace of growth may slow,” said Banny Lam, managing director and head of research at CEB International Investment in Hong Kong. “Markets will remain very volatile due to the uncertainty.”
–With assistance from Tian Chen.
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