$48bn dumped as coronavirus infects stockmarkets

Investors wiped $48bn off the Australian sharemarket on Monday as the worsening coronavirus pandemic triggered a sell-off.

A man wears a mask in the Myungdong shopping district in Seoul, South Korea. Picture: Getty Images

Investors wiped $48bn off the Australian sharemarket on Monday as the worsening coronavirus pandemic triggered a sell-off in global equity markets and a rush for safe havens including gold and bonds.

In its biggest one-day fall in more than six months, the benchmark S&P/ASX 200 index hit an almost three-week low of 6967.9 points on Monday, before closing down 160.7 points, or 2.3 per cent, at 6978.3. The index was up 4.4 per cent for the year after hitting a record high of 7197.2 last week.

CSL, BHP and Macquarie Group fell at least 3 per cent, Magellan dived 6 per cent and Qantas tumbled 7.5 per cent, while the major banks outperformed and Newcrest surged 5 per cent. Reliance Worldwide dived 27 per cent after cutting its full-year earnings guidance.

It came after the US S&P 500 Index dived 1.1 per cent on Friday as disappointing services-sector purchasing managers data questioned the ongoing resilience of the US economy. At the same time a surge in coronavirus cases in South Korea, Italy and Iran triggered a further sell-off in global markets amid concern that the pandemic may cause a broad and deep slowdown in the global ­economy.

“I would not be stepping to buy the market yet,” said Richard Coppleson, head of institutional sales and trading at Bell Potter. “We look to now be finally seeing a reaction by markets to the virus. This fall could very easily move to 5 per cent or even 10 per cent if the US market gets spooked.”

S&P 500 futures were down 2 per cent on Monday evening, suggesting the global sell-off could gather pace. European equities faced a rough night, opening sharply lower after Italy locked down an area near Milan with 50,000 people and Venice and Milan cancelled all public events amid more than 130 cases. London’s FTSE100 index fell 2.7 per cent on opening, and Germany’s DAX dropped 3.4 per cent in early trade.

The Australian dollar reacted negatively to the spread of coronavirus over the weekend, falling as much as 0.6 per cent from Friday’s New York closing level to an 11-year low of US65.85c and investors rushed to safe havens including precious metals and government bonds.

Spot gold jumped 2.2 per cent to a seven-year high of $US1679.70 per ounce and 10-year Australian government bond yields fell as much as 6 basis points to 0.884 per cent.

Brent crude oil fell 3.4 per cent to $US46.53 a barrel and LME copper dipped 1.7 per cent.

Lucerne Investment Partners portfolio manager Jerome Lander said a “complacent” sharemarket was only just “waking up” to the true economic risk of the coronavirus outbreak.

“Until now, the equity market has dismissed the issue as China-specific, containable and short-term, but this is likely to change in short order as a complacent market wakes up to risk,” he said.

“A complacent and bullish market has simply compared the illness to historical outbreaks which have had little impact on markets, and hence dismissed it without much further thought or analysis,” Mr Lander added.

“The consensus wants to believe this time is different from prior cycles as current central banks and policymakers now seemingly control asset prices and seemingly want them kept high.”

Around the region, South Korea’s KOSPI index dived 3.6 per cent after the nation raised its infectious disease alert to its highest level after a 20-fold rise in cases, leading the Bank of Korea to hold an emergency meeting.

The Hang Seng index fell 1.9 per cent, Taiwan’s TAIEX index dived 1.3 per cent, the FTSE Malay KLCI fell 2.8 per cent and the Straits Times index fell 1 per cent. Japan was shut for a holiday.

China’s Shanghai Composite dipped 1.1 per cent before recovering somewhat as China relaxed some travel bans, including in Wuhan where the virus began.

Five Chinese provinces lowered their coronavirus emergency level, China’s National Development and Reform Commission said China’s industrial restart was gaining pace, and the Ministry of Finance said China would cut taxes and fees to help companies and look at targeted tax cuts, special bond issues and increasing transfers to virus-hit regions.

AxiTrader chief market strategist Stephen Innes said the extremely rapid growth in coronavirus cases in South Korea, asymptomatic positive cases in US evacuees from the Diamond Princess and the explosive outbreak in Italy showed “the world is getting spooky” in regard to the outbreak.

On Friday it was reported that 11 of 13 US evacuees of the Diamond Princess in Japan tested positive in the US even though not all had tested positive in Japan.

“But of all the alarming aspects of the rapidly spreading virus out of Wuhan is that it’s showing up in patients with no connection to China or the city of Wuhan, ground zero for the outbreak,” Mr Innes said. “It suggests things are about to get extremely problematic, and market conditions could get exponentially worse this week.”

With 40 per cent of China’s offshore bonds from stressed issuers worth nearly $US10bn maturing in 2020, “it is hard to see this ending well”, Mr Innes said.

“That means it’s very hard not to stay hedged, if not buy more safe-haven assets.”

Pengana senior portfolio manager Rhett Kessler said his “triple hedge” against a pullback in the sharemarket — via equity index put options, cash and gold equities exposure — was working. “Valuations are high, the margin for error was low,” Mr Kessler said.

“There have been some very good earnings reports, but valuations have broadly been disconnected from fundamentals for some time.”

The Pengana Australian Equities Core fund bought equity index puts and increased its exposure to cash and gold to guard against a correction in the sharemarket, Mr Kessler said. “It’s a triple hedge — so we have puts, we have lots of cash and aren’t playing in defensive stocks.”