Asia: Markets roiled on Wuhan virus fears; STI down 1.81%

ASIAN equities returned from the Chinese New Year (CNY) break awash in a sea of red as mounting fears over the spread of the Wuhan coronavirus - jolting memories of 2003's Sars outbreak in Asia - weigh on the region's risk assets.

At the midday break, Singapore's Straits Times Index (STI) shed 83.89 points or 2.6 per cent to 3,156.13, below the blue chip's support level of 3,200.

It ended the day down by more than 58 points or 1.81 per cent to close at 3,181.25.The STI is in the red for the year.

Elsewhere in the Asia-Pacific, Australia's S&P/ASX 200 index closed down 1.4 per cent at 6,994.50, its lowest since Jan 15, and Japan's Nikkei 225 index fell 0.55 per cent, or 127.80 points, to finish at 23,215.71. Meanwhile, South Korea's KOSPI index ended down 69.41 points, or 3.09 per cent at 2,176.72, posting its sharpest one-day fall since Oct 11, 2018.

Among South-east Asian markets, Indonesia's Jakarta Composite Index lost 22 points to end at 6,111.18, and Malaysia's Kuala Lumpur Composite Index was down by more than 20 points to close at 1,551.6.

China, Hong Kong and Taiwan markets remained close for the CNY holidays. Chinese authorities have extended the CNY break to Monday as part of efforts to limit the spreading of the virus.

With equities sold off, investors rotated to safe haven assets. US 10-year Treasury yields fell to 1.61 per cent, its lowest closing level since October, and gold was trading at US$1,579.82 per ounce. Investors also moved to safe haven currencies such as the Swiss franc, the Japanese yen and the greenback.

Since last Friday, the number of deaths from the Wuhan virus has tripled to over 100 and confirmed cases have swelled past 3,000.

Given that the virus's incubation period spans between seven and 14 days, and the outbreak is still at an early stage, numbers are expected to rise in the coming days.

IG market strategist Pan Jingyi said: "Asia markets are expected to grapple with the impact of the coronavirus in the near term as the market sentiment gets badly battered over the worsening situation. In fact, given the experience from the Sars episode, impact on Asia would linger for a longer duration than the West going by the current state of the virus spread."

While market reaction has been both "swift and one-sided", AxiTrader chief Asia market strategist Stephen Innes noted that it was too early to discount the recent price action as a "classic risk-off then rebound, especially with the market fear index going through the roof".

With China's increasing role in global supply chains, markets continue to price in worst case, negative growth shock scenarios, he added.

Oanda's Asia-Pacific chief market analyst Jeffrey Halley acknowledged that the "situation is likely to remain the status quo" until a clearer picture of China's progress in controlling the Wuhan virus emerges.

"One silver lining is that the region is well placed for an equally speedy recovery if positive news starts to emerge from the mainland," he said.

Looking back at the Sars outbreak in 2003, Bank of Singapore head of investment strategy Eli Lee observed that markets "hit bottom when the rate of infection peaked, before staging a sharp recovery as the number of new cases began to stabilise".

This, he added, suggests recent price correction "is ultimately one to buy, but it is now too early to buy broadly on dips".

Mr Lee said: "We believe that the Wuhan virus outbreak alone is unlikely to derail an anticipated global economic recovery this year, given low interest rates, relief from a US-China trade truce and the likelihood of more stimulus from China to counteract the outbreak's economic hit."

In the current climate, OCBC Investment Research advised clients on Tuesday to keep "market fundamentals in mind, avoid panicking and remain well-diversified".