Shares fall sharply

China leads markets lower as virus threatens isolation

A nationwide battle is under way to combat the virus

Markets in China reopened sharply lower after the Lunar New Year holiday as concerns spread over the impact of the coronavirus on the economy.

Measures by China’s central bank to underpin the economy failed to prevent the Shanghai Composite index falling nearly 9% before edging slightly higher, while commodity prices also slumped.

Manufacturing, materials, and consumer goods companies were among the biggest fallers.

Markets in Japan, Australia and New Zealand were also down. The FTSE 100 opened flat at 7,285, helped by the pound weakening against the dollar, down 0.6% to $1.3130. This is regarded as good for companies whose shares are priced in pounds but who earn in foreign currencies including the dollar.

Explaining the sharp fall in Shanghai, Russ Mould of AJ Bell, said: “Chinese stocks played catch-up on Monday as its markets reopened after more than a week’s closure. The Shanghai Composite index fell nearly 8% as investors finally had a chance to react to the coronavirus spreading,” comments

“While the scale of this movement is enormous in terms of daily stock market action, it essentially puts China’s market more in line with how the Hong Kong index has reacted in the past few weeks.

“Running the numbers from when Hong Kong’s Hang Seng index market peaked on 17 January, the former index has since fallen by 9.3% versus a 10.7% drop from China’s Shanghai Composite index.

A total of 361 people have died in China from the coronavirus with the first death out of the mainland reported on Sunday in the Philippines.

The People’s Bank of China (PBOC) lowered short term interest rates as part of its attempts to relieve pressure on the economy from the rapidly spreading virus.

It is also pumping an extra 150 billion yuan (£16.3bn) into the economy, a move aimed at ensuring there is enough liquidity in the banking system.

In total, the central bank will inject 1.2 trillion yuan into the financial system today, the majority of which was already planned. The liquidity boost is the largest single day addition on record.

The PBOC said it could make more cash available throughout the week, as Chinese financial regulators forecast the impact on the country’s already slowing economy will be “short term”.

However, as more airlines cancel flights in and out of China and some countries impose travel bans, economists have begun to downgrade their forecasts.

Citi revised its full-year forecast for China’s GDP growth to 5.5% in 2020 from 5.8%. It also cut first-quarter growth expectations to 4.8%, compared with 6% in the fourth quarter of 2019.

JPMorgan shaved its forecast for global growth by 0.3 percentage points for this quarter.

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