Asia Markets

Chinese shares lead gains in Asia, Shanghai composite up 1.3%

Key Points
  • Asia Pacific markets mostly traded higher on Wednesday, building on gains from the previous session, after stocks sold off recently due to worries over the new coronavirus outbreaks. 
  • Chinese shares led gains in the region, with the Shanghai composite up 1.25% to around 2,818.09.
  • On Monday, stocks in mainland China had plummeted more than 7% after they returned to trade following an extended holiday as the rapidly spreading pneumonia-like virus spooked investors. 

Asia Pacific markets mostly traded higher on Wednesday, building on gains from the previous session, after stocks sold off recently due to worries over the new coronavirus outbreaks.

Chinese shares led gains in the region, with the Shanghai composite up 1.25% to around 2,818.09. The Shenzhen component index rose 2.14% to 10,305.50 and the Shenzhen composite added 2.48% to about 1,678.63. The Chinext start-up board was up more than 3% to around 2,180.29.

On Monday, stocks in mainland China had plummeted more than 7% after they returned to trade following an extended holiday as the rapidly spreading pneumonia-like virus spooked investors.

Japan's Nikkei 225 advanced 1.02% to 23,319.56 while the Topix index added 1.04% to 1,701.83. The yen, considered a safe-haven asset in times of market uncertainties, changed hands at 109.42 per dollar, weakening from levels below 108.80 earlier in the week.

In South Korea, the Kospi index erased some of its near 1% gains to trade up 0.36% at 2,165.63. Hong Kong's Hang Seng index gave up most of its gains of around 0.83% earlier to trade up 0.27%.

Australia's benchmark ASX 200 rose 0.39% to 6,976.10, as the heavily weighted financial subindex gave up earlier gains to finish fractionally lower. Major banking stocks in the country closed mixed, with Commonwealth Bank shares dropping 1.22%.

The session in Asia Pacific followed overnight rallies on Wall Street and in Europe.

"Markets have now embarked on a new rebound, spurred by China's efforts to support its economy alongside an apparent decline in concerns over the Coronavirus impact on the global economy," Rodrigo Catril, senior foreign-exchange strategist at the National Australia Bank, wrote in a morning note.

China's central bank lowered interest rates on reverse repurchase agreements — a tool used by central banks to add money to the money supply — on Monday to ensure adequate liquidity supply in the system as the country tackles to contain the virus outbreak. The People's Bank of China reduced the 7-day reverse repo rate by 10 basis points from 2.50% to 2.40%, and the 14-day rate was slashed from 2.65% to 2.55%.

PBOC injected 1.7 trillion yuan (approx. $242 billion) into money markets through reverse repurchase operations on Monday and Tuesday. On Wednesday, the central bank said it decided not to conduct open market operations for the day because there was "adequate liquidity in the current banking system, which is sufficient to meet the market demand."

Still, some economists think the Chinese central bank's efforts may not be enough to offset the economic impact of the coronavirus outbreak that has already killed 490 people in the country.

Read: Coronavirus live updates: Death toll in China hits 490, as confirmed cases cross 24,000

The fast-spreading infection is already starting to have an impact on China: travel numbers have declined due to restrictions and quarantines, businesses are feeling the impact from falling demand, and large swathes of the country remain shut, including many factories.

"Each day as populations remain quarantined, firms and factories are shuttered and uncertainty remains regarding the spread and severity of the coronavirus, the impacts spread further within China via a number of channels within the economy," Steve Cochrane, chief Asia Pacific economist at Moody's Analytics, wrote in a note.

Cochrane said that while economic impacts of the virus outbreak will be felt elsewhere in Asia and in the U.S., China will feel the brunt of it. He highlighted five industrial sectors that appear to be most at risk from the coronavirus and the resulting quarantines throughout the country: Transportation and warehouse industry, wholesale and retail trade, commercial real estate, entertainment, and manufacturing.

"These five industries combined would reduce first-quarter 2020 GDP by 1.2%, or around 0.3% for the entire year," Cochrane wrote. "This does not include multiplier effects within other industries, a longer-term loss of confidence, or the longer-term impact on credit availability and credit quality."

South Korea's Hyundai Motor said on Tuesday it decided to temporarily suspend production assembly lines from operating at all of its plants in the country due to disruptions in the supply of parts from China. Hyundai shares closed flat.

In the currency market, the U.S. dollar traded at 98.004 against a basket of peers, climbing from a low of 97.787 in the previous session. The Australian dollar was flat around $0.6738.

Oil prices advanced during Asian hours on Wednesday: U.S. crude was up 0.87% at $50.04 a barrel while global benchmark Brent advanced 0.96% to $54.48.

OPEC and its allies could cut production by more than a million barrels a day, according to some experts. The producer group is said to likely bring forward a planned policy meeting from March to February, which would underscore the serious worries over a double-digital collapse in the price of oil this year.

For the year, U.S. crude is down more than 19% while Brent is lower by 18%, and there are worries that the coronavirus outbreak will significantly curb demand. Moody's Analytics said in a note that at current prices, "commodity producers will soon begin to cut back on production and investment."