Suddenly, the Chinese yuan looks vulnerable again.
The currency had steadily appreciated against the dollar since October, strengthening back through the psychologically-important 7.00 level on its way to 6.85, as the US and China finally inked Trump’s “Phase One” trade deal and the Chinese economy appeared to stabilize.
On Tuesday, the yuan sank the most since late August as an outbreak of deadly viral pneumonia rippled across regional markets and undercut risk sentiment.
The last time the yuan fell this much in a day was Monday, August 26. Three days previous, Donald Trump threatened to force US companies out of China. He also hiked tariffs, leading to a meltdown in US markets.
Fears that travel during the Lunar New Year holiday could accelerate the spread of the new coronavirus (which has killed six as of Tuesday morning) unnerved market participants and raised the pandemic alarms.
In Wuhan – where the virus originated – anyone with symptoms is being stopped at travel checkpoints and prevented from boarding planes and trains. So far, the city of 11 million has reported 258 cases over the past two days.
There have been a handful of cases in Beijing, more than a dozen in Guangdong and at least seven suspected cases in other parts of China, including Sichuan, Yunnan and Shanghai.
Cases have already popped up in Japan, Thailand and South Korea, which reported its first case on Monday. Here’s AP with a bit more:
Many of the initial cases of the coronavirus were linked to a seafood market in Wuhan, which was closed as authorities investigated.
Since hundreds of people who came into close contact with diagnosed patients have not gotten sick, the municipal health commission maintains that the virus is not easily transmitted between humans.
“However, the source of the new type of coronavirus has not been found, we do not fully understand how the virus is transmitted, and changes in the virus still need to be closely monitored,” China’s National Health Commission said in a statement Sunday.
“Markets have priced too little in, in terms of the spreading of this virus across multiple Asian cities from Wuhan”, CMC Markets’ Margaret Yang remarked.
Headed into this week, Chinese investors were the most leveraged since February 2018, with margin debt perched at 1.04 trillion yuan, as liquidity injections ahead of the holiday, buoyant economic data and signs of thawing in the trade war emboldened market participants.
Suffice to say bullish sentiment has taken a hit. Mainland shares dropped 1.7% Tuesday in the worst session since November and the second-worst since trade tensions were running high in August.
“Some investors may well have looked to lock in some profits given the recent positive run and the elevated risk of further negative virus-related headlines”, Rabobank said.
“People are getting nervous and cashing out”, Shanghai-based Wang Chen, a partner at XuFunds Investment Management told Bloomberg. “There was a bit too much hype in the market recently”.
Nothing like a pneumonia apocalypse to take some of the “hype” out of things.