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World braces for economic impact of Wuhan coronavirus outbreak

Sting already felt in Japan amid flurry of tour cancellations

Workers from local disease control and prevention department in protective suits disinfect a residential area following the outbreak of a new coronavirus, in Ruichang, Jiangxi Province.   © Reuters

BEIJING/SHANGHAI -- Global stock markets opened weaker on Monday as investors grew increasingly worried about the economic and financial impact of the coronavirus outbreak that began in the China and has started to spread worldwide. 

In Asia, Japan's benchmark Nikkei opened down 1.8%, while the MSCI Asia index of regional stocks slipped in trade thinned by China's Lunar New Year holidays. Financial markets in China, Hong Kong and Australia are closed on Monday. Safehaven assets such as the yen and U.S. treasuries firmed, while gold also rose.

Chinese authorities said on Sunday that the ability of the coronavirus to spread is getting stronger and infections could continue to rise, in part because the disease was infectious during its incubation period of between one and 14 days, even if there is no sign of symptoms.

Ma Xiaowei, the head of China’s National Health Commission, said that makes it different from the SARS virus, another coronavirus that originated in China but was not infectious during its incubation period. So far, more than 2,700 people have been infected and 80 people in China have been killed by the new disease, which originated in the city of Wuhan. SARS left over 770 people dead in 2002-03.

In an effort to stem the spread of the virus, China extended the Jan. 24 to Jan. 30 New Year holiday by three more days to discourage people from traveling at the same time as tens of millions of people who visited their hometowns or tourist spots were due to return home this week.

School openings were postponed after the holidays until further notice, and Chinese-ruled Hong Kong said it would ban entry to people who have visited Hubei Province or its capital Wuhan in the past 14 days, which is currently under a travel lockdown. China's national travel agency also suspended tour groups traveling overseas and domestically.

The outbreak of the virus coincides with what is traditionally China's busiest travel season, with over 7 million people estimated to have made plans to travel abroad. 

So far, scattered cases have been found in Thailand, Taiwan, Japan, South Korea, the U.S., Vietnam, Singapore, Malaysia, Nepal, France, Canada and Australia, the Associated Press reported.

The U.S. has meanwhile confirmed cases in Washington state, Chicago, southern California and Arizona. Over the weekend, the U.S. State Department said it was evacuating staff from its Wuhan consulate, and Japan's foreign ministry has also made similar plans.

The 2003 outbreak of SARS, or severe acute respiratory syndrome, caused $18 billion in losses, pushing down the economic growth rate in East and Southeast Asia by 0.6 percentage point, according to an estimate by the Asian Development Bank. 

Although there are no readily available estimates yet on the economic impact of the latest coronavirus, China's economic rise since 2002 to become the world's second-biggest economy, with its industry deeply entwined in global supply chains, means it is unlikely to be negligible.

So far, the most visible impact of the virus has been on tourism-related business -- not least in Japan, where Chinese visitors accounted for about 30% of the country's 32 million visitors last year, spending roughly 1.77 trillion yen ($16 billion).

A hotel in Toyako, Hokkaido, said almost all of its 200 or so rooms were booked for the Lunar New Year holiday, which started this past weekend. But it has been hit by a flurry of cancellations by Chinese guests over the past few days, and now has as many as 50 vacant rooms on some days. A hotel representative said that with Beijing banning group tours, cancellations are likely to grow.

A hotel near Mount Fuji in Yamanashi Prefecture, said that almost 100 would-be guests will not be arriving because five group tours from China have been called off.

A Tokyo-based tour bus operator said that most tours for Chinese visitors to Tokyo Disney Resort and Mount Fuji have been canceled. ANA Holdings unit All Nippon Airways is suspending all flights between Wuhan and Narita Airport near Tokyo until Saturday.

A Chinese economic slowdown would hurt the earnings of Japanese companies, and concern among investors would result in downward pressure on stock prices.

"Risks will grow for such stocks as retailers that have been propped up by inbound tourism demand," said Yoshinori Shigemi at JPMorgan Asset Management.

The yen rose to 108.73 per dollar, its strongest level since Jan. 8, before paring gains slightly to trade up 0.3% at 108.95, Reuters reported, while the yield on the benchmark 10-year U.S. bond dropped to a 3-1/2-month trough of 1.627%.

Mini futures on the S & P 500 index also dropped by around 1%, after the benchmark stock market index on Friday suffered its sharpest drop in three months.

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