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Nikkei Markets

Hong Kong shares flat as China markets plunge amid coronavirus fears

Shanghai Composite sinks and yuan tumbles despite Beijing's supportive moves

HONG KONG (Nikkei Markets) -- Chinese equities plunged on Monday as the mainland markets reopened after an extended Lunar New Year break amid the deadly outbreak of a fast-spreading coronavirus. Hong Kong shares were little changed.

The Shanghai Composite Index plummeted 8.1% in the morning trading session after being shut for 10 days for an extended Lunar New Year break, as authorities scrambled to stem the spread of a novel coronavirus that originated in the central city of Wuhan. China's Ministry of Health on Sunday confirmed 17,705 people had been infected with the virus so far and that 361 had died. Those numbers are up from about 500 confirmed cases of people infected and 17 deaths as of Jan. 23, the last time mainland markets were open.

The yuan traded onshore slumped 1.2% to 7.0170 against the U.S. dollar on Monday, heading for its worst single-day drop since August.

In Hong Kong, the Hang Seng Index added 0.09% to 26,336.41 by noon after falling as much as 0.6% earlier. The index changed directions three times during the session. Internet services heavyweight Tencent Holdings advanced 1.7%, while China Construction Bank and Industrial & Commercial Bank of China rose 1.3% and 1.7%, respectively.

The reopening of the mainland markets could alleviate some selling pressure on Hong Kong, said Castor Pang, head of research at Core Pacific Yamaichi International (H.K.). Still, "it has not totally removed the downside risk," he added.

The Hang Seng China Enterprises Index of large mainland companies listed in Hong Kong added 0.5% after sliding 6.5% over period China was closed. The benchmark Hang Seng Index declined 5.9% last week.

Monday's losses in the mainland came even as China's central bank moved to boost liquidity in the markets. The People's Bank of China on Monday lowered the interest rates on 7-day and 14-day reverse repurchase agreements by 10 basis points.

"While the move should take some pressure off of banks and borrowers, the rate cut is too marginal to provide a substantial offset to the drag on economic activity from the coronavirus outbreak," Julian Evans-Pritchard, an economist at Capital Economics, wrote in a note. He added that he expects more cuts in the coming months.

The Chinese central bank also injected 1.2 trillion yuan ($174 billion) into money markets through reverse bond repurchase agreements.

A number of countries, including the U.S. and Singapore, have curbed travel to and from China. Hong Kong has banned residents from China's Hubei Province from entering the city, but it has not halted all travel from mainland China. Worries over the economic impact of the outbreak have been widespread, with retail and travel and leisure sectors expected to take a beating.

"We still believe that economic activities should recover swiftly once the number of new cases comes under control, and subsequently market sentiment should also improve," Tai Hui, chief market strategist at J.P. Morgan Asset Management Asia, wrote in a note. "This could take time to play out, but this underpins our long term optimism in the A-share market despite a challenging time ahead."

Ascletis Pharma jumped 32.8% in Hong Kong. The biotechnology company on Monday said it had received a request for the use of its Ritonavir, an antiviral protease inhibitor used to treat HIV-1 infections, and ASC09 fixed-dose combination, a combination of two antiviral protease inhibitors used to treat HIV-1, for clinical trials in patients infected with the Wuhan coronavirus.

Fusen Pharmaceutical surged 53.1%. The company on Monday noted recent media reports regarding effectiveness of its Shuanghuanglian Oral Solutions in inhibiting the Wuhan coronavirus. It said it has not carried out any research activities on the effectiveness of the drug in inhibiting virus.

China Oriental Group fell 1.1% after saying it expects net profit for the year ended Dec. 31 to decrease 35% to 55% from a year ago.

-- Benny Kung

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