Investor sentiment was battered across Australian and foreign share markets. (AAP: Paul Miller)
Australian shares have slumped over worries about the economic fallout from the rapidly spreading coronavirus.
- The ASX is experiencing its steepest losses since the year began
- Every sector has fallen sharply, with energy (-4pc) and materials (-2pc) being the hardest hit
- The coronavirus outbreak is expected to have a significant impact on Australia’s economy, given China is its biggest trading partner
The ASX 200 dropped by as much as 110 points, or 1.6 per cent, in early trade
By 1:10pm (AEDT), the benchmark index was down 1.2 per cent at 6,937 points, as it managed to pull back from some of those heavier losses.
Meanwhile, the Australian dollar dipped below 66.9 US cents, its lowest value in almost 11 years.
More than 300 people in China have now died from the virus outbreak, which has been declared a global emergency by the World Health Organisation.
It has also infected more than 14,000 worldwide, mostly in China.
Heavily exposed to China slowdown
The Shanghai Composite index has plummeted by 7.3 per cent — after being closed for more than a week due to the Lunar New Year holiday being extended by Chinese authorities.
This was despite China’s central bank pledging to inject 1.2 trillion yuan ($260 billion) of liquidity into its market via reverse repurchasing operations.
The People’s Bank of China has, essentially, agreed to purchase shares from its domestic share market to later sell at a higher price.
It was mostly a sea of red across the Asia-Pacific with Tokyo’s Nikkei and Seoul’s KOSPI down by 1 and 0.5 per cent respectively.
Hong Kong’s Hang Seng index, however, has lifted by 0.6 per cent.
“The biggest threat to the global economy is not just because the disease spreads quickly across countries through networks related to global travel,” said AxiCorp market strategist Stephen Innes.
“But also, because any economic shock to China’s colossal industrial and consumption engines will spread rapidly to other countries through the increased trade and financial linkages associated with globalisation.”
Investor sentiment across global markets has taken a hit given China’s dominance as the world’s second largest economy.
Australia is particularly vulnerable if China’s economy slows down drastically, given it is the nation’s biggest trading partner.
The Chinese Government’s two-month travel ban — which prevents tour groups from leaving China — may cost Australia at least $1 billion in services exports, according to estimates by investment bank UBS.
The UBS estimates were made before Australia’s Government announced a ban on temporary visitors from China entering Australia.
Oil and gas sector hardest hit
Every Australian sector is in the red, with nine out of every 10 stocks on the ASX 200 posting losses.
The ASX is experiencing its sharpest losses since the year began.
As investors fled from risk, gold mining stocks were the best performers, including Northern Star Resources (+2.9pc), Saracen Mineral Holdings (+1.7pc) and Evolution Mining (+2.2pc).
The spot price of gold has lifted sharply since the year began, up more than 4 per cent to $US1,587 an ounce.
Worley and Oil Search were among the worst performing stocks — having plunged by more than 7.4 per cent each on weaker oil markets.
Oil prices have been slipping for the past four weeks, with Brent crude down to a four-month low of $US55.60 per barrel.
But there were other factors that drove the shares of these two companies sharply lower.
Oil Search fell after talks broke down between the company (along with its joint venture partners Exxon Mobil and Santos) and the Papua New Guinea Government.
The disagreement relates the P’nyang gas expansion project, valued at $20 billion.
The PNG Government and energy companies arguing over what is an appropriate “return on investment” for both sides.
Worley shares were tumbled after investors were caught by surprise, after the engineering company’s long-serving chief executive Andrew Wood announced his plans to step down.
Santos, A2 Milk and Webjet have also fallen significantly, down more than 3 per cent each.