Coronavirus correction batters stockmarkets

Panic selling around the world spurred by the coronavirus has ripped $210bn from the Australian market over the past week.

A trader reacts during the opening bell at the New York Stock Exchange. Picture: AFP

Panic selling here and around the world spurred by the rapid spread of the coronavirus has ripped $210bn in value from the Australian market over the past week, putting the shares firmly in correction territory.

The sharemarket suffered its worst day since the depth of the European debt crisis in 2011 and one of its worst weeks in history as the global spread of coronavirus morphed into risk liquidation.

Selling was broadly based, but hardest hit were high-priced technology stocks, commercial property and mining stocks with exposure to China, while the Australian dollar dropped to a fresh 11-year low and government bond yields hit new record lows.

Savage selling across Asia also pushed Japan and South Korean markets into a correction.

“In these types of markets ‘the good the bad and the ugly’ all get sold down heavily as investors reduce their overall exposure to the equity market,” said Investors Mutual investment director Anton Tagliaferro.

With Wall Street benchmark the S&P 500 sliding 4.42 per cent to 2978.76 points on Thursday — its worst day since August 2011 — the US market has fallen 12 per cent from a record high six days ago, marking its fastest-ever correction of at least 10 per cent, and driving volatility up to a two-year high of 39 per cent.

The Australian sharemarket followed, with the S&P/ASX 200 down 3.3 per cent to 6441.2 points — its worst day since September 2011. The local bourse had one of its fastest corrections in history, losing 10 per cent or $210bn of its value in the past five days. It hit a record high of 7197.2 last week.

Shares in Europe opened sharply lower on Friday, with London off as much as 4 per cent, while Germany’s Dax was down 5 per cent in early trade.

The coronavirus has spread to 50 countries, including 60 confirmed cases in the US, stoking fears about major disruption across the global economy.

Cases in South Korea have spiked to more than 2300, the biggest exposure outside of China.

“What is clear is the potential supply and demand shock that may be about to sweep the global economy. That likely justifies the equity sell-off of this week with a harsh reassessment of delusional valuations in some cases,” said Jeffrey Halley, senior market analyst Asia-Pacific at OANDA.

A 9.8 per cent fall in the S&P/ASX 200 marked its worst week since the global financial crisis of 2008. The long-standing All Ordinaries Index lost 9.9 per cent, its third-worst fall since the crash of 1987.

The sell-off comes ahead of Tuesday’s meeting of the Reserve Bank, amid heightened expectations the RBA could bring forward any rate cuts.

Traders are also tipping the US Federal Reserve to cut interest rates in March.

Bond markets around the world effectively came to a halt as few had the appetite to issue debt in uncertain markets.

ASIC executive director of markets Greg Yanco said on Friday the corporate regulator was making sure the market could continue to operate normally, although he said the economic impact of the COVID-19 virus was uncertain.

“Precedence suggests it could be short-lived,” Mr Yanco said. A sell-off in regional equities accelerated on Friday after Hyundai said it had shut its giant Ulsan plant in South Korea after a worker was infected with coronavirus. The auto plant is the world’s biggest, with 32,000 people making 5800 vehicles a day.

“It may be a long ride for Korea, and likely negative impact on the economy could worsen and lengthen,” said Citi economist Marie Kim.

In Asia, Japan’s Nikkei 225 plunged 3.7 per cent, South Korea’s KOSPI lost 3.3 per cent, Singapore’s FTSE Straits Times index fell 3 per cent, the Hang Seng fell 2.5 per cent and China’s Shanghai Composite dived 3.3 per cent.

Industrial commodities were pummeled, with Brent crude oil down 2.9 per cent to a 14-month low of $US51.52 a barrel, London Metal Exchange copper down 2.5 per cent to $US2.5080 a pound, and Dalian iron ore futures down 3.3 per cent.

The Australian dollar sell-off also accelerated, the local currency falling 0.8 per cent to an 11-year low of US65.16c while also falling 1.5 per cent to a six-month low against the safe-haven Japanese yen.

Among other safe havens, the yield on the benchmark 10-year Australian commonwealth government bond fell 4 basis points to a record low of 0.818 per cent — edging closer to the cash rate of 0.75 per cent.

While sharp falls in the price of gold and gold equities including Newcrest Mining and Evolution Mining suggested that risk hedges might have been unwound, traders said those falls were caused by forced selling to offset losses elsewhere after markets moved so sharply this week.

“100 per cent it was a liquidity event,” said an institutional trader who declined to be named.

Spot gold fell 1.4 per cent to $US1621.29 an ounce in Asian trading before bouncing to $US1638.80.

Several traders said there would be forced selling on Monday related to margin calls, although most of the forced selling on Friday related to stop-loss selling in derivatives, including warrants.

Some said it was time to buy.

“Even if you do not think that the equity market sell-off is done, there is room to consider buying what has just been sold off aggressively,” wrote Credit Suisse macro strategist, Damien Boey.

“The only place left to hide is price reversal — buying what went down, and selling what held firm yesterday. And to avoid value traps.”

Bell Asset Management chief investment officer Ned Bell said he started buying in selected global stocks this week after raising cash in January by moving to underweight on US technology stocks.

As well as the concern about demand and supply impacts from the virus, the fastest 10 per cent correction in history had as much to do with an unwinding of crowded bets in the US technology stocks popular among passive funds and momentum traders, Mr Bell said.

“More and more stocks in the US are starting to get undervalued, even with earnings coming down a bit, so while I’m certainly not saying it’s the bottom it’s a lot closer than it was a week ago.”