Authorities in Wuhan, the epicentre of the new coronavirus outbreak that has killed 17 and infected nearly 600 people, shut urban transport networks and suspended outgoing flights.
The drastic measures spooked investors who scrambled for safe haven in bonds.
China’s blue-chip index CSI300 tanked 3.1 per cent to 4,003.90 points, posting its biggest one-day loss in nearly nine months. Shanghai stocks lost 2.8 per cent to 2,976.53 points.
The CSI300 index marked its worst week since May 2019, while the Shanghai benchmark fell the most on-week since August last year. China financial markets will be suspended on Friday for the week-long Lunar New Year holiday.
The Hong Kong market slid 1.5 per cent. It will trade for half a day on Friday.
Selling intensified in afternoon trading as news trickled in about fresh cases of infection across China, and cancellation of entertainment events.
The market was dominated by fears of the Wuhan coronavirus, which stirs dark memories of the 2002-2003 SARS outbreak, said Larry Hu, an economist at Macquarie Capital Ltd.
“We can’t answer how severe it will be and when it will end,” Hu wrote, adding “The worst is yet to come.”
However, fundamentals will eventually rule for the year, as the virus’ impact on China’s economy is “manageable and short-lived,” Hu argued.
It was not clear yet whether the virus would follow the six-month life cycle of SARS, said Chi Lo, Greater China economist at BNP Paribas Asset Management.
The outbreak posed bigger downside risks in China’s sequential economic growth as consumption and the service sector is a bigger part of the economy.
The sell-off was across the board, but most concentrated in transport and leisure sectors as people avoid interactions and outdoor activities.
The healthcare sector was the only bright spot, as demand for vaccines and health check-ups surged following the virus outbreak, although no drugs can directly treat the flu-like symptoms of the new coronavirus.
Airline shares continued to weaken, with Air China , China Eastern Airlines and China Southern Airlines dropping more than 3 per cent each.
Wanda Film slumped nearly 7 per cent, while China Film and Beijing Enlight Media Co fell nearly 5 per cent.
Bucking the trend, biotech firms and drugmakers surged with Shandong Lukang Pharmaceutical Co, Jiangsu Sihuan Bioengineering Co and Jiangsu Lianhua Pharmaceutical Co all advancing by their daily limit of 10 per cent.
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