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Tue 28 Jan 2020 10:45 AM

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Stocks, oil falls as global markets react to Chinese coronavirus spread

Luxury goods makers and airlines suffered particularly on equity markets, as Chinese tourist spending is a key factor for them

Stocks, oil falls as global markets react to Chinese coronavirus spread

China warned that a deadly new coronavirus was spreading fast. Image: AFP

Global stocks and oil dropped Monday as panicked investors fled risky assets for safer bets gold, bonds, the dollar and the yen, after China warned that a deadly new coronavirus was spreading fast.

Luxury goods makers and airlines suffered particularly on equity markets, as Chinese tourist spending is a key factor for them. Shares of energy and technology companies were also weak.

China extended its traditional Lunar New Year holidays to buy time in the fight against the epidemic but fears of a repeat of the 2003 Severe Acute Respiratory Syndrome (SARS) outbreak, which also began in China, spooked investors.

Recent record highs on stock markets gave them plenty of room for a reverse.

Key European stock markets dropped more than two percent, while losses on Wall Street were only slightly less severe.

Oil prices also retreated on concerns over demand from China, the world's top energy consumer.

'Major panic'

"The bottom line is that the virus has become deadly and it has caused a major panic in markets," said Ava Trade analyst Naeem Aslam.

Art Hogan, chief market strategist at National Holdings, said rising investor unease has reflected an increased number of cases and as the virus has spread to more regions.

"The escalation of the news causes more uncertainty," especially for travel-oriented companies, Hogan said.

"I think it's very logical, especially given that the sectors that would be affected by any slowdown are getting hit the hardest."

Analysts said there were growing fears the crisis could become as bad as the SARS outbreak that hammered markets and the global economy 17 years ago.

The new outbreak has led China to lock down Wuhan, epicenter of the disease and home to 11 million people, while imposing tight travel restrictions on a number of other cities including Beijing.

The move comes during the Lunar New Year holiday when hundreds of millions of people criss-cross the country and spend huge amounts of money.

Flight to safety

Most Asian markets were closed for the Lunar New Year break but Tokyo was open and fell two percent. Bangkok plunged nearly three percent on worries over the Thai travel sector.

The flight to safety saw the yen rally against the dollar, with the Japanese unit now up more than one percent from eight-month lows reached earlier this year.

The dollar however rose against the euro and pound.

Gold, another go-to asset in times of turmoil and uncertainty, seemed headed back towards $1,600 per ounce and the six-year peaks touched at the start of January.

While the main focus is on the spread of the virus, traders will also be keeping an eye on the release of earnings this week from top companies including Apple, Facebook and Samsung.

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